Harvard and US near deal on suit

Five years after the US Department of Justice sued Harvard University, a star professor, and another university staff member alleging that they defrauded the government, lawyers announced a tentative settlement in the case yesterday.

A federal judge had already found that Harvard economics professor Andrei Shleifer and former employee Jonathan Hay conspired to defraud the government by making personal investments in Russia while working on a federal contract to help the country's transition to capitalism.

The judge also ruled last year that Harvard breached its contract with the US Agency for International Development. Damages in the case have not been determined.

None of the parties would reveal the terms of the settlement yesterday, saying the details had not been hammered out.

It was not clear whether Shleifer, Hay, or university officials have agreed to admit wrongdoing, or how much they will pay.

The details of the settlement will be made public within 60 days, after an agreement has been signed, according to a spokeswoman for US Attorney Michael J. Sullivan's office.

Both sides may have had good reason to settle, since the decisions in the case thus far had been mixed.

Last June, Judge Douglas P. Woodlock dismissed the most serious charge against Harvard, that it had knowingly deceived the agency.

If there had been a jury trial on damages, Harvard could have been liable for the $34 million the agency paid for the contract after Shleifer and Hay began investing, plus interest.

But the two men could have owed much more: Under the False Claims Act, the government was seeking triple damages, up to $102 million from each.

Until now, Harvard has aggressively defended itself against the charges, calling the civil lawsuit ''an attempt on the part of the government to achieve a more than $100 million windfall."

Assistant US Attorney Sara M. Bloom announced that a tentative settlement had been reached yesterday morning at a status conference that lasted for less than 10 minutes.

''Is there any question about this?" Woodlock asked the lawyers. ''This has been up and down for six months now. Is this the end point of this trial?"

Several lawyers answered yes.

''There are no outstanding issues," said David J. Apfel, one of Harvard's lawyers.

Martin F. Murphy, Shleifer's lawyer, pointed out that ''the settlement agreement remains to be drafted."

Woodlock issued an order saying the case would be dismissed in 60 days, unless the settlement falls apart.

No one would discuss the case in any detail yesterday.

''The parties have reached agreement on all major terms, but they have also agreed that no details of the settlement will be disclosed until the agreement has been signed," Harvard spokesman Joe Wrinn wrote in an e-mail in response to questions.

Shleifer, a celebrated economist, and Hay, a Harvard law school graduate now working as a lawyer in London, were top officials at the law reform project of the Harvard Institute for International Development, which is now defunct.

From 1992 to 1997, the institute had a contract with USAID to give impartial advice to Russian officials on overhauling the Russian economy.

Shleifer and Hay, however, also were investing or making plans to invest hundreds of thousands of dollars in Russian securities, oil companies, and mutual funds, according to Woodlock's judgment.

Woodlock wrote that Hay ''was at least acting in reckless disregard" of his obligation to abide by a conflict-of-interest provision.

Woodlock presided over a four-day trial in December in which a jury determined that Shleifer was subject to the contract's conflict-of-interest rules. Shleifer had argued he was not.

The judge has not ruled yet on whether Shleifer knew he was violating his contract or acted in reckless disregard.

The government said Shleifer and Hay's actions set back Russia's economic progress, ''ruptured" relations between the United States and Russia, and tainted $350 million in US projects.

In his ruling last June, Woodlock wrote, ''Based on the information that Harvard did not know (and should not be held reckless in not knowing) about Hay and Shleifer's investment and business activities, I find that Harvard did not know that the statements it submitted to USAID were false."

Harvard's president, Lawrence H. Summers, is a close friend of Shleifer's, and has recused himself from university decision-making about the case.

Marcella Bombardieri can be reached at bombardieri@globe.com.