Wall Street Journal
February 5, 1999
U.S. Jury Probes Russia ProjectBy STEVE LIESMAN and CARLA ANNE ROBBINS
Run by Harvard University Aides
Staff Reporters of THE WALL STREET JOURNAL
A federal grand jury in Boston has been conducting a criminal probe in connection with the work of a Harvard professor and a former Harvard legal expert who stewarded the U.S. government's flagship assistance program to Russia, several people familiar with the investigation said.
The U.S. Agency for International Development, which had funded the Harvard operation, alleged in May 1997 that Harvard economist Andre Shleifer and legal expert Jonathan Hay benefited from private business dealings while running the program. AID alleged they had "abused the trust of the United States government by using personal relationships ... for private gain."
Both men have denied wrongdoing.
The U.S. Attorney's Office in Boston is also said to have been considering a separate civil lawsuit against Harvard University in which it could seek to recover tens of millions of dollars of grant money administered by the university in Russia on behalf of the U.S. government.
David Wiler, the former chief financial officer for Harvard's main organization in Moscow that administered the funds, said that Harvard attorneys told him in May they were concerned the U.S. government "would file a lawsuit against Harvard for the full $57 million" of contracts awarded to the university.
Harvard officials also declined to comment except to say that the university is cooperating with the Justice Department's investigation.
People familiar with the matter say the U.S. Attorney's Office has interviewed people in the past several months and that grand jury subpoenas were issued as recently as November. The U.S. Attorney's Office declined to comment.
One person interviewed by the U.S. Attorney's Office said Justice Department lawyers said they were considering a civil suit against Harvard for its failure to supervise its employees in Moscow.
The Justice Department confirmed "a pending criminal and civil investigation" on the matter in a June letter to Rep. Benjamin Gilman (R., N.Y.), chairman of the House International Relations Committee.
The Harvard Institute for International Development was awarded $57 million in contracts from the U.S. Agency for International Development from 1992 through 1997. The programs were designed to help Russia develop capital markets and rewrite Soviet-era commercial and civil laws -- the centerpiece of the U.S. effort to help Russia develop a capitalist economy.
But in 1997, the agency alleged that Mr. Hay bought Russian treasury bonds with his own money despite AID regulations that forbid employees from investing in project countries. AID also questioned whether Mr. Hay allowed his friend, Elizabeth Hebert, to use U.S.-funded staff and resources to establish Russia's first mutual fund.
AID has said Mr. Shleifer's wife, Nancy Zimmerman, a hedge-fund manager, used the U.S.-funded staff and resources of the Harvard program to make investments in Russia, including hundreds of thousands of dollars of investments into Russian bonds. AID contended that Mr. Shleifer was aware of her actions. Ms. Zimmerman in the past contended that she paid for all private work that Harvard's offices in Moscow conducted for her company.
Mr. Wiler said he told Justice Department attorneys of a fax Ms. Zimmerman had sent to the U.S.-funded offices in Moscow ordering $550,000 in Russian bonds to be sold. "I said to myself, 'What's going on here? I thought this was an assistance program.' "
Earl Nemser, the attorney for Mr. Shleifer and Ms. Zimmerman said, "My clients are not targets of any criminal investigation." Mr. Nemser wouldn't elaborate. "Target" is a legal term that means a grand jury has informed an individual that it is specifically focusing on his or her activities.
Mr. Hay's attorney declined to comment.
When the allegations were first made, a lawyer for Mr. Hay said his investments into Russian bonds weren't covered by AID's conflict of interest regulations. A Columbia law professor, in an explanation prepared for Mr. Shleifer in 1997, said Harvard's and AID's rules didn't apply to him because he was a consultant to the AID program and not an employee.
Ms. Zimmerman and Ms. Hebert have said they received no benefits from their personal relationships and paid for all services provided to them in Russia.
In May 1997, AID suspended its relationship with the Harvard program in Russia and canceled $14 million of remaining contracts with the university.
AID's inspector general's office launched an investigation, which has since been turned over to the U.S. Attorney's Office in Boston. Messrs. Hay and Shleifer were removed from the project soon after the matter became public; Mr. Shleifer remains a tenured economics professor at the university.