Staff land Harvard with suit for $120m

October 6, 2000

The US government is suing Harvard University for $120 million (Pounds 82 million), alleging that two faculty members used a government-backed development programme in Russia for personal gain.

The two, who were supposed to serve as financial advisers to the Russian government, used their positions to make personal investments, hiding them under relatives' names, prosecutors said.

In an unusually frank response, university officials conceded that Harvard might have some responsibility in the case but argued that the $120 million damage claim was far too high. "If, on gaining access to relevant material, the university determines that it bears responsibility in this matter, it will take appropriate action," officials said in a written statement.

Harvard had dismantled the programme, known as the Institute for International Development, before the suit was filed. At the time, Harvard said the institute no longer fitted with the school's education mission. The programme by then had 188 staff and a budget of $34 million.

The university had already sacked the programme's two administrators, Jonathan Hay and Andrei Shleifer, when it learnt that they were under investigation for insider trading. Mr Shleifer, who was the institute's director, continues to serve as an economics professor at Harvard.

The two were working under a $57 million US government grant to advise on establishing capital markets, privatising government assets and reforming the legal system in Russia. Those involved in the grant were prohibited from making investments in Russia.

According to the suit, however, the two administrators "abused their positions as high-level and trusted advisers to and on behalf of the United States in Russia, and misused resources funded by the United States for their own personal benefit and the personal benefit of their wives, girlfriends, and/or business associates".

Named with Harvard in the suit are Mr Shleifer and his wife, Nancy Zimmerman, and Mr Hay and his wife, Elizabeth Hebert. They were said to have made improper investments.

Among other things, the suit alleges that Mr Shleifer and his wife invested $260,000 in Russian companies and government debt; and that they, with Mr Hay, bought "several hundred thousand dollars' worth" of shares in Russian oil companies in the name of Ms Zimmerman's father.

Lawyers for the couples say their clients did nothing wrong and have been falsely accused.

Harvard said that it did not profit in any way and that "no one in a position of responsibility at the university had any knowledge of these alleged actions by the two individuals".

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