U.S. v. President and Fellows of Harvard College
| Decision Date | 28 June 2004 |
| Docket Number | No. CIV.A.00-11977-DPW.,CIV.A.00-11977-DPW. |
| Citation | 323 F.Supp.2d 151 |
| Parties | UNITED STATES of America, Plaintiff, v. PRESIDENT AND FELLOWS OF HARVARD COLLEGE, Andrei Shleifer, and Jonathan Hay, Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Elizabeth A. Adinolfi, Dorothy J. Aronovich, Skadden, Arps, Slate, Meagher & Flom, New York, NY, James R. Carroll, Skadden, Arps, Slate, Meagher & Flom, Boston, MA, Jonathan L. Frank, Vincent Tortorella, Skadden, Arps, Slate, Meagher & Flom, New York, NY, for Jonathan Hay, Defendant.
David J. Apfel, Roberto M. Braceras, Goodwin Procter, LLP, Boston, MA, Robert W. Iuliano, Harvard University Holyoke Center, Office of the General Counsel, Cambridge, MA, Anne Taylor, Harvard University Office of the General Counsel, Cambridge, MA, Paul F. Ware, Goodwin Procter LLP, Boston, MA, for The President And Fellows of Harvard College, Defendant.
Alicia Bentley, U.S. Department of Justice, Commercial Litigation Branch, Washington, DC, Sara M. Bloom, United States Attorney's Office, Boston, MA, Sara McLean, Department of Justice Civil Division, Washington, DC, Nancy Rue, United States Attorney's Office, Boston, MA, for United States of America, Plaintiff.
Elizabeth Helen Cleary, Nutter, McClennen & Fish, LLP, Boston, MA, for Andrei Shleifer, Defendant.
Adam B. Rowland, Swidler Berlin Shereff Friedman, LLP, New York, NY, Christopher J. Gunther, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Andrei Shleifer, Defendant.
Stephen R. Delinsky, Michael P. Flammia, Eckert Seamans Cherin & Mellott, LLC, Boston, MA, for Forum Financial Group, LLC, John Y. Keffer, Movants.
Theo Emery, Associated Press, Boston, MA.
Jonathan B. Leiken, Skadden, Arps, Slate, Meagher & Flom LLP, New York NY, for The President And Fellows of Harvard College, Andrei Shleifer, Elizabeth W. Hebert, Nancy Zimmerman, Defendants.
Earl H. Nemser, Swidler Berlin Shereff Friedman, LLP, New York, NY, Benjamin E. Rosenberg, Swidler Berlin Shereff Friedman, LLP, New York, NY, for The President And Fellows of Harvard College, Andrei Shleifer, Nancy Zimmerman, Defendants.
D. Lloyd MacDonald, Kirkpatrick & Lockhart, Boston, MA, for Elizabeth W. Hebert, Defendant.
Matthew T. Peloso, Swidler Berlin Shereff Friedman, LLP, New York, NY, Robert L. Ullmann, Nutter, McClennen & Fish, LLP, Boston, MA, for The President And Fellows of Harvard College, Andrei Shleifer, Defendants.
Lawrence S. Spiegal, New York, NY, David M. Zornow, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Andrei Shleifer, Jonathan Hay, Defendants.
The United States seeks substantial damages arising from alleged improprieties in a government-sponsored Harvard project to assist Russia in developing capital markets and foreign investments. The government's contract with Harvard barred employees who were assigned to what was known as the "Russia Project" from conducting certain business and investment activity that could give rise to real or apparent conflicts of interest. The government contends that defendants Andrei Shleifer and Jonathan Hay, who were senior supervisory figures at the Russia Project, nevertheless wrongfully invested and conducted business in Russia, resulting in a breach of the contract by Harvard. Moreover, the government contends that Harvard and the two employees thereafter knowingly caused documents to be submitted that falsely certified, in violation of the Federal False Claims Act ("FCA"), that Harvard was complying with the contract, and that these documents had the practical effect of inducing continued payments to Harvard. The matter is now before me on cross motions for summary judgment.
In October 1992, Congress enacted the Freedom for Russia and the Emerging Eurasian Democracies and Open Market Support Act of 1992. 22 U.S.C. §§ 5801 et seq. The Act authorized the United States Agency for International Development ("USAID") to implement a program to help the states of the former Soviet Union "work toward the creation of democratic institutions and an environment hospitable to foreign investment based upon the rule of law." 22 U.S.C. § 5811(6)(B).
In 1992, USAID entered into a Cooperative Agreement with the Harvard Institute for International Development ("HIID"), a Harvard University entity, to create a program to support the Russian reform effort. This program was referred to as the "Russia Project." The two parties signed a second Cooperative Agreement to continue the program's efforts, effective October 11, 1995.
The cover letter of the first Cooperative Agreement stated that the agreement was being made to the recipient "on condition that the funds will be administered in accordance with the terms and conditions as set forth in [an attachment entitled] `Standard Provisions,' which have been agreed to by your organization." The cover letter to the second agreement contained similar language. Included in the Standard Provisions of both agreements were the Regulations Governing Employees ("RGEs"). The RGEs contained a conflict of interest clause:
Other than work to be performed under this grant for which an employee is assigned by the grantee, no employee of the grantee shall engage directly or indirectly, either in the individual's own name or in the name or through an agency of another person, in any business, profession, or occupation in the foreign countries to which the individual is assigned, nor shall the individual make loans or investments to or in any business, profession or occupation in the foreign countries to which the individual is assigned.
The first Cooperative Agreement also required that the grantee The second Cooperative Agreement similarly called for written standards of conduct governing real or apparent conflicts of interest.
The cover letter to the second Cooperative Agreement also stated that the award was being made "on condition that the funds will be administered in accordance with the terms and conditions as set forth in 22 C.F.R. § 226." That section provided:
The recipient shall maintain written standards of conduct governing the performance of its employees engaged in the award and administration of a contract supported by Federal funds if a real or apparent conflict of interest would be involved. Such a conflict would arise when the employee, officer, or agent, any member of his or her family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in the firm selected for an award. The officers, employees, and agents of the recipient shall neither solicit nor accept gratuities, favors, or anything of monetary value from contractors, or parties to subagreements. However, recipients may set standards for situations in which the financial interest is not substantial or the gift is an unsolicited item of nominal value. The standards of conduct shall provide for disciplinary actions to be applied for violations of such standards by officers, employees, or agents of the recipient.
The requirement of written standards of conduct governing real or apparent conflicts of interest was satisfied by a conflict of interest provision in the HIID Overseas Manual. That provision prohibited "employees and members of their families" from engaging in any:
[F]inancial transactions or investments within the Project Country ... The only financial transactions that are permissible are the exchange of currency in legal markets, the purchase of goods and services, and the maintenance of bank accounts consistent with the provisions of this section.
The restriction against any financial transactions or investments in the Project Country arises because each HIID overseas group examines under official or semi-official auspices a wide range of local economic matters, knowledge of which at least presents the actual possibility or appearance of exploitation for personal gain. For this reason, HIID does not permit or condone transactions by an Employee or by family members, even if legal, which might suggest a possible conflict of interest between the team's professional work and the private profit of team members.
Prohibited transactions or investments included "holding of debt instruments, maintaining any interest whatsoever in any local business, or making investments of any kind in the Project Country." Violation of the policy was grounds for "immediate dismissal."
Andrei Shleifer served as a Project Director of the Russia Project throughout the two agreements. Under the second agreement, he was the sole Project Director. Shleifer is a tenured Professor of Economics at Harvard University in Harvard's Faculty of Arts and Sciences. He is married to Nancy Zimmerman who, during the time relevant to this litigation, managed a hedge fund known as Farallon Fixed Income Associates.
During the period of the second Cooperative Agreement, Shleifer also held the title of Principal Investigator. Rosanne Kumins, the Assistant Director for Contract Administration at HIID, also referred to Shleifer as the project "Backstopper," meaning the "responsible senior person in Cambridge."
Shleifer engaged in some administrative tasks as Project Director, including the recruitment and selection of personnel. Shleifer recalls that "quarterly reports were shown to [him] for comments...
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