Harvard Defendants Pay Over $31 Million to Settle False Claims Act Allegations, Reports U.S. Attorney

Aug 03, 2005, 01:00 ET from U.S. Attorney

    BOSTON, Aug. 3 /PRNewswire/ -- Assistant Attorney General for the
 Department of Justice's Civil Division Peter Keisler; United States Attorney
 Michael J. Sullivan; Arnold J. Haiman, Acting General Counsel of the United
 States Agency for International Development; and Bruce Crandlemire Acting
 Inspector General of the United States Agency for International Development's
 Office of Inspector General, announced today that the United States has
 successfully resolved its civil case against HARVARD UNIVERSITY, ANDREI
 SHLEIFER and JONATHAN HAY.  In a settlement reached with the United States,
 HARVARD, SHLEIFER, HAY and FFIA, formerly known as Farallon Fixed Income
 Associates, LP, have agreed to pay a total amount in excess of $31 million to
 resolve civil claims arising out of Harvard's fraudulent billings to the U.S.
 Agency for International Development ("USAID").
     The two senior Harvard University advisors, SHLEIFER, as Project Director,
 and HAY, as Project Manager, were paid under a USAID grant to lead a project
 to provide advice to the nascent Russian economy on privatization following
 the fall of communism and the creation of fair and open markets and the rule
 of law. The United States alleged that instead, SHLEIFER and HAY used their
 positions and substantial influence over Russian officials at this pivotal
 time in Russian history to advance their own and their spouses' private
 financial interests.
     Under today's settlement, the total payments will exceed $31 million.
 Specifically the settlement calls for HARVARD to pay $26.5 million; SHLEIFER
 to pay $2 million; and HAY to pay between $1 million and $2 million (depending
 upon his earnings over the next 10 years). Also factored into the settlement
 amount total is $1.5 million already paid to the United States by FFIA,
 formerly known as Farallon Fixed Income Associates, LP, a company owned by
 SHLEIFER's wife, Nancy Zimmerman. In addition, SHLEIFER and HAY have agreed to
 be debarred by USAID.
     "Protecting the integrity of U.S. funded international development
 programs is essential to their success and to ensuring our government's
 credibility among other nations," commented U.S. Attorney Michael Sullivan.
 "The defendants were entrusted with the important task of assisting in the
 creation of a post-communist Russian open market economy and instead took the
 opportunity to enrich themselves.  Such conflict of interest activities only
 serve to undermine important development programs.  As evidenced by the hard
 fought five-year litigation of this matter, the U.S. Attorney's Office is
 committed to protecting federal funding from misuse and ensuring the adherence
 to the requirements of government contracts."
     "Improper use of federal grant programs for the purpose of self-enrichment
 will not be tolerated," said Peter D. Keisler, Assistant Attorney General for
 the Civil Division. "Today's settlement demonstrates our commitment to
 fighting fraud and abuse against the United States wherever we find it."
     The United States' case provided extensive evidence that, despite the
 clear terms of the agreements, SHLEIFER, and HAY were making prohibited
 investments in Russia in the areas in which they were providing advice. The
 United States further demonstrated that SHLEIFER and HAY were self-dealing by
 using their positions, as well as USAID-funded resources, to advance their own
 personal business interests and investments and those of their wives and
 friends. Their self-dealing activities included using their influence over the
 Russian Securities Commission to which they were key advisors to secure for
 themselves and their wives the first ever launched and licensed mutual fund in
 Russia. The terms of the USAID grant strictly prohibited any investments in
 Russia by American advisors funded under the grant.
     The Civil Complaint alleged, and the Court found, that while they were
 being paid by USAID, SHLEIFER and HAY engaged in the following prohibited
 investments and businesses in Russia:
     (1)  SHLEIFER and his wife Zimmerman invested and reinvested $200,000
          through Renova-Invest, a United States/Russian investment entity, in
          various Russian companies and in Russian government debt;
     (2)  SHLEIFER, Zimmerman and HAY purchased several hundred thousand
          dollars worth of shares in Russian oil companies, but placed the
          ownership of those shares in the name of SHLEIFER's father-in-law;
     (3)  HAY and SHLEIFER participated in the launching and/or financing of:
          (a) Russia's first licensed mutual fund, which was started by
          Elizabeth Hebert, HAY's then girlfriend, now wife, and (b) Russia's
          first licensed mutual fund depository, the First Russian Specialized
          Depository ("FRSD"), which was started by Hebert's business partner
          and provided support services to the mutual fund.
     The United States alleged and demonstrated that SHLEIFER, HAY and HARVARD
 never disclosed any of these prohibited personal business activities and/or
 investments to USAID.
     The Civil Complaint alleged that as a result of the misconduct of the
 defendants, USAID funds expended on the Project were diverted, abused and
 wasted.  As a result of the defendants' misconduct, USAID suspended and
 ultimately terminated the HARVARD project in Russia.
     "Conflicts of interest and corruption attack at the core of what USAID
 strives to achieve for developing nations throughout the world and are
 certainly two of the most serious threats to the success of USAID sponsored
 programs," stated Acting USAID Inspector General Bruce Crandlemire.  "Eight
 years of intensive investigation and tireless litigation on this case
 represents a firm and dogged commitment by the offices charged with the
 protection of federal dollars to the principle that power and influence does
 not provide a free pass to those who would attempt to exploit their positions
 of public trust for private gain."
     "USAID is proud of its employees for the strong action they took at the
 time this conduct was discovered and their relentless investigation and
 pursuit of this matter to this successful conclusion," stated Acting USAID
 General Counsel Arnold J. Haiman.
     After extensive summary judgment briefings, U.S. District Judge Douglas P.
 Woodlock, in a one hundred-page opinion, found liability against SHLEIFER and
 HAY under the False Claims Act, and against HARVARD for breach of contract
 with USAID. At a federal civil trial, a jury found additional liability
 against SHLEIFER for SHLEIFER's violation of the conflict of interest policy
 in USAID's contracts with HARVARD.
     This case was handled by Assistant U.S. Attorneys Sara Bloom and Nancy Rue
 of Sullivan's Civil Division and Trial Attorneys Alicia Bentley and Sara
 McLean of the Department of Justice's Commercial Litigation Branch, with the
 assistance of Diane Perone of the USAID General Counsel's Office. It was
 investigated by agents from the Inspector General's Office of USAID.

SOURCE U.S. Attorney