Friday, August 05, 2005

Harvard forks over 

The Harvard Crimson Online reports details of the settlement in the case of Harvard's Institute for International Development, economics professor Andrei Shleifer and the U.S. government.
Harvard will pay $26.5 million to the U.S. government to settle a five-year-old lawsuit that implicated two University employees, including its star economics professor, Andrei Shleifer '82, the Justice Department announced Wednesday.

Shleifer, who is Jones professor of economics, emerged far less scathed in the settlement, agreeing to pay just $2 million. He had faced damages of up to $104 million for conspiring to defraud the government while advising a U.S.-funded program to privatize the Russian economy in the 1990s.

Shleifer has mortgaged his home to pay the first installment of $600,000. USAID has also disbarred them from working on aid projects for two years. There is no admission of liability on the part of any of the defendants, as part of this deal.

The liability in this case, including treble damages for violation of the False Claims Act, could have been $120 million against both Shleifer and his colleague Jonathan Hay. That each got away for $2 million (and maybe less for Hay, depending on what he earns over the next ten years), and that Harvard picked up $26.5 million in turn (their max liability was only $35 million), suggests that Harvard was eager to get this out of the way. Shleifer and President Larry Summers are colleagues who have known each other for a long time and are reported to be friends.

UPDATE: (8/8): As I expected, David Warsh has a great essay tying this up, and he thinks Summers is the bigger loser here.

A somewhat more intriguing figure than Shleifer in the Russia Project is economist Lawrence Summers, Shleifer's mentor and old friend, who taught him as an undergraduate; sent him to the Massachusetts Institute of Technology to train; took him to Lithuania to practice country-doctoring; brought him back from the University of Chicago to teach at Harvard; helped put him in the Russia job; oversaw, as an increasingly senior Treasury Department official, Shleifer's efforts in Moscow; and, once he returned to Harvard as president, defended his prot�g�.

Friendship explains much of Summers' role. A combination of patriotism, arrogance, marital hard times and plain bad judgment explains the rest. The Harvard president is in a world of woe. The likelihood that justice will be meted out to him on any separable basis is not great. The Bad-News Train is bearing down on Larry Summers at 40 miles per hour.