The last great financial scandal of the 1990s wrapped up in court last week when Harvard University agreed to pay the US government $26.5 million to settle charges that its star economics professor Andrei Shliefer had sought to gain a personal fortune while leading Harvard's government-sponsored mission to Moscow

The settlement put an end to eight years of legal wrangling. US Attorney Michael Sullivan said in a statement, "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."

Shleifer and his wife, hedge fund operator Nancy Zimmerman, will pay $2 million and $1.5 million respectively, according to the settlement (the latter sum having been previously announced). Shleifer's deputy, Jonathan Hay, will pay as much as $2 million over ten years, if he can earn it as a lawyer in London.

Altogether, it adds up to around $31 million, or most of the roughly $40 million that the government paid Harvard to provide disinterested advice to the Russian government.

Adjust for interest cost, on the other hand, which in the worst case accrues at the rate of 1 percent a month on paid-out sums from the moment the contract is first breached (in this case, early 1994) and the actual recovery is less -- something less than half  the money that Harvard garnered under the contracts.

For all the parties, the agreement avoids the costs and risks of a jury trial.

Bill Clinton barely had been elected president when, in December 1992, the US Agency for International Development hired Harvard's Institute for International Development to counsel the government of Boris Yeltsin in creating confidence in fair play in Russia's emerging financial markets.

Less than five years later, in mid-1997, USAID abruptly shut the project down, amid charges by American whistle-blowers in Moscow that its Harvard leaders were ostentatiously lining their pockets.

After extensive grand jury hearings, US attorney Donald Stern in Boston put aside his criminal investigation and in September 2000 filed a treble damages civil suit instead, charging fraud, asserting that various conflicts by the project leaders and their wives had undercut the fundamental purpose of the mission and led to its collapse.

Harvard's potential exposure under the government's claim -- $120 million.  

But last year US District Court Judge Douglas Woodlock dismissed the charge of deliberate fraud against the university's part and found instead that Harvard simply had failed to deliver the disinterested advice called for by its contract. General counsel Robert Iuliano expressed the university's relief that the court had found "no institutional wrongdoing" and promised more vigilant compliance efforts in the future.

But the brazen attitude adopted by Shleifer at the end of the government's long quest means the drama now will shift to two other realms. To Harvard University, where he teaches.  And to the economics profession, where Shleifer is editor of a major journal.

There's also the world of big-time magazine journalism. Investigative reporter David McClintok (his 1982 book Indecent Exposure was a best-selling chronicle of corruption in the movie industry) is preparing a substantial article.

"An individual can fight the unlimited resources of the government for only so long,"  said Shleifer in a statement. "After eight long years, I have decided to end this now--without any admission of liability on my part.  I strongly believe I would have prevailed in the end, but my lawyers told me my legal fees would exceed the amount that I will be paying the government." 

So much for what Judge Woodlock found -- that, once installed by the US as its adviser to Russian president Boris Yeltsin, Shleifer invited his deputy Hay to invest with him in Russian oil stocks despite contract prohibitions against such investments, then gradually upped the ante.

Their illicit activities culminated in an attempt (at a regulatory agency they advised) to vault to the head of the licensing queue a company formed by Shleifer's wife and Hay's girlfriend to offer the first Russian mutual funds. That was the caper which scandalized Harvard's Moscow office. USAID investigated and swiftly shut the project down.

Whatever other undertakings the quartet had contemplated never will be known. Government prosecutors extensively deposed Harvard figures involved in property estate markets -- real estate being an asset class that never quite made it to the Yeltsin government "loans for shares" program that created the small band of extremely wealthy Russians known as oligarchs.

The Harvard case is a major story in Russia, where privatization of state-owned assets to the oligarchs is regarded as something less than a complete success. But the Financial Times last week ignored the settlement, The New York Times and Washington Post ran Associated Press accounts, and The Boston Globe buried the story at the bottom of its metro page. Such is the power of money to obscure. Only The Wall Street Journal gave the story any ink -- the redoubtable Carla Anne Robbins has followed it from the beginning. 

Because it was conditioned by conjectures on all sides about the likely findings of a shadow jury, the case ends having provided little illumination of what the defendants are worth. The lawyer Hay, a former Rhodes Scholar and Harvard Law School graduate, is viewed as relatively impecunious. He lives in London with his wife and three children.

His settlement agreement calls for an initial payment of $500,000 over the course of the next year, followed by future payments for eleven years of some fraction of his net after-tax income, unless he can rustle up an exit payment of between $1 and $2 million, depending on the date. Harvard, which fired the unlucky consultant as soon as its contract was cancelled, has refused to pay his legal bills.

Shleifer, however, is another matter.  He continues to be employed by the university. His endowed chair in the economics department is intact. Harvard is viewed as being unlikely to pay his legal bills, which are steep. (Apparently the matter is a serious bone of contention.) His house in suburban Newton is mortgaged to the government as part of his promise to pay $2 million over the next three years.

But with a long history of successful investing (there is no telling what were his gains while he was advising Russia),  a well-to-do wife, a family house in France (according to fellow economists), a variety of offers from other universities and powerful friends on six continents, he is nothing if not a man with options.

Even so, Shleifer has been the less interesting figure in the case all along.  Not that he is not compelling -- one of the economics profession's leading experts on corruption now discovered to have been memorably corrupt himself.  Raised in the former Soviet Union until he was 16, Shleifer was swept into Harvard and MIT on scholarship, then sent out to the frontiers of policy economics by the time he was 30 years old -- hardly long enough to learn the folkways of the university, much less the broader world beyond.

Yet he is an academic expert on psychology and economics, on comparative political systems and financial markets, a winner of the John Bates Clark Medal as the best American economist under forty -- in short, probably a bigger factor in luring top graduate students to Harvard economics than all but one or two others in his department..

In fact, Shleifer is more than little like the famous baseball player Rafael Palmiero, who last spring raised his voice and jabbed his finger at the members of Congress questioning him as he denied taking steroids ("Period!" "Never!"), who then tested positive weeks later for a drug that may have been the injected steroid stanozolol.

Palmiero is a superb ball player, one of only six to have hit 500 home runs and collected 3000 hits in the history of the game -- a record that would surely have qualified him for baseball's Hall of Fame if it weren't for the steroid scandal.

But like Shleifer, Palmiero is a highly talented refugee from a socialist culture, in his case, Cuba. His contempt for government is built-in. It is not surprising that he did not understand his peril when subpoenaed to testify under oath.

The real fault in baseball's steroid scandal is with the people who own the game. In the mid-1990s, they feared baseball was losing its attractiveness to fans -- especially after a players' strike shut down the 1994 season in August.  It was then that owners turned a blind eye to growing use of steroids by the athletes they employed (and engineered perhaps slight changes to the specifications of the ball as well), in hopes that the subsequent chase for records would lure fans back to the game. About this, at least, they were not mistaken.

(Perhaps not surprisingly, President George W. Bush, a former part-owner of the Texas Rangers, for whom Palmiero played for a time, said he believed the ballplayer's newly-qualified denials -- "not intentionally or knowingly" -- despite the evidence of the drug test.  In his 2004 State of the Union address, the president condemned the use of steroids, warning that American youth were beginning to believe that "performance is more important than character.")

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 protégé.

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.

So the really interesting figure in the Russia Project case is Harvard itself, meaning the university's headquarters in Massachusetts Hall, the officials then in charge who in 2000 made the decisions to defend their young star, President Neil Rudenstine and Provost Harvey Fineberg;  and, of course, the 60-person Department of Economics itself.

Why not acknowledge obvious wrongdoing?  Why prefer intelligence to integrity? In the autumn, the venue of the Shleifer matter will shift to the inner councils of the Harvard faculty and to the economics profession. These are the questions they'll be asking then.