During the first few days of the New Year, the US government’s lawsuit against Harvard University and its economics professor Andrei Shleifer had inched forward in the direction of a grinding damages trial.

The case, which has to do with the collapse of Harvard’s mission to Moscow amid charges of corruption, is an embarrassing hangover from the corporate and political scandals of the 1990s.  The US government was paying the bill for supposedly disinterested advice.

First the government indicated that it wanted to take a year to prepare to argue that Harvard’s failure to supervise its team leaders adversely affected everything from the subsequent performance of the Russia economy to US national security.

Harvard promptly responded by asking US District Court Judge Douglas Woodlock to clamp down sharply on the question of damages and to put the case before a jury in the fall. Trench warfare, in other words, same as it’s been for more than five years.

Then, last week, three things happened in the space of five days.

• Yale University’s disclosed it had fired tenured economics professor Florencio López-de-Silanes, a protégé and frequent collaborator of Andrei Shleifer, for double-billing his expense accounts.

• Jack Meyer announced he was leaving Harvard Management Company with four associates to start his own firm, after fifteen years of unparalleled success in running the university’s endowment, during which time Harvard’s bank account grew from $5 billion to $23 billion.

• Harvard, Shleifer and the government together asked the judge for a thirty day delay in various deadlines. They were working on a settlement, they told the court, and a hiatus might be “productive.”

Were the three events in any way connected?  And, if so, how? It will be years before we can hope to answer with any degree of certainty. We may never really know.

But Harvard Management’s Co.’s quiet but extensive program of investing in Russia in the mid-1990s was a part of the government’s investigation from the beginning.

And though the investigation produced no charges, the view is common among Russians and those who have worked in Russia that undisclosed behind-the-scenes links are the force that has bound Harvard so tightly to Shleifer.

Consider:

The Yale story by itself was merely interesting; seemingly small potatoes in the scheme of things. Prof. López-de-Silanes, 38, had been recruited Harvard’s John F. Kennedy School of Government in 20092 to head Yale’s newly created Institute for Corporate Governance in Yale’s School of Management.

The Wall Street Journal disclosed last Monday that López-de-Silanes had been placed on unpaid leave pending his resignation after an audit found that he had double-billed Yale for around $150,000 in business travel expenses since arriving from Cambridge.  A separate World Bank investigation of various contracts he administered is continuing.

Through his lawyer, López-de-Silanes stated: “I deeply regret any unintended harm. I have taken appropriate corrective steps with all affected parties and I can offer no excuse except the intensity of my focus on my work. I am leaving Yale because it is the right thing to do for the Institute and all concerned.”

So Yale reacted to scandal one way, Harvard quite another. The two universities’ differential treatments of its errant economists has raised eyebrows around the world.  For while Yale immediately sought its professor’s resignation despite his tenure, Harvard has for eight years backed Prof. Shleifer to the hilt.

True, the malfeasance which each professor committed is slightly different. Lopez-de-Silanes in effect stole money from his employer. Shleifer, on the other hand, made investments in Russian stocks, bonds and a business while advising the Russian government on behalf of the US Agency for International Development — a flagrant conflict of interest prohibited both by Harvard rules and by his government contact.

But where Yale cashiered its professor, Harvard repeatedly has dug in its heels. Shleifer wasn’t covered by the rules, the university argued,  because he didn’t work really for Harvard  (it was the Harvard Institute for International Development, since disbanded, that signed the checks); and  besides, he wasn’t really “assigned” to Russia anyway, since he only commuted from Cambridge.

Last July, Judge Woodlock threw out the first argument and ruled that Shleifer and his deputy, former Rhodes Scholar Jonathan Hay, had committed fraud by setting up their wives in a mutual fund business which their Russian government counterparts then favored with a licensing head start. And a jury took barely two hours to dismiss the second “assigned to”  argument last month.

In other respects, however, the situations were strikingly similar.  Both Shleifer and López-de-Silanes grew up abroad — the former in Russia, the latter in Mexico.  Both began brilliant academic careers in Cambridge, Mass.: Shleifer at Harvard College (where a young assistant professor named Lawrence Summers was his mentor) and the Massachusetts Institute of Technology, López-de-Silanes as a graduate student at Harvard, where Shleifer was his teacher. Both were experts in finance.

Both men consulted to governments around the world. López-de-Silanes was a founding member of the Blue Ribbon Panel on Corporate Governance in Russia and the Committee on Best Corporate Practices in Mexico. Shleifer directed Harvard’s Russia project for several years.

Both were said to behave autocratically.  Both were reported to authorities by whistleblowers among those whom they supervised.

The two also have collaborated extensively. A recent resume lists fourteen recent joint papers (all including permutations of other authors as well), including “The New Comparative Economics,” The Practice of Justice” and “Theft Technologies.”

(In the light-of-love, light-of- justice department, it should be said that both men are charismatic, both profess the highest ideals, and nobody has as much money as they’d like. Shleifer, 53, is a senior figure in the profession, a winner of the John Bates Clark Medal, given annually to an American economist under 40, and the editor of the influential Journal of Economic Perspectives as well. Most recently, he was honored by the University of Munich.)

Still López-de-Silanes is out of a job while Harvard has continued to vigorously defend itself, jointly with Shleifer, in court. A difference of opinion of this magnitude between two great universities in their response to professional misconduct would be surprising enough. But there is more.

Meyer and the Harvard endowment are part of the story simply because Harvard Management was and aggressive investor in Russia in the mid-1990s, during the period that Shleifer was advising the Russian government and illicitly investing on his own behalf. For example, Euromoney magazine at the time described Harvard as “bolder than most,” because it bought stakes in companies themselves, instead of relying on intermediaries such as hedge fund managers.

When government attorneys deposed Meyer in the course of their suit against Harvard, they learned that as much as 1.8 percent of Harvard’s endowment had been invested in Russia in the years before the US government fired Shleifer — some $200 million of a portfolio then worth around $11 billion — not the 10 percent that gossip had it at the time.

Though he (and other Harvard Management employees) occasionally had contacts with Shleifer and other members of the Harvard team that was advising the Russian government at the time, Meyer testified that no inside information had been exchanged.

His memory of the trips he had made to Russia proved hazy, though — to the point of forgetting a third trip altogether, until he was shown a record of it.

All the while in those years, Shleifer’s old friend and mentor economist Lawrence Summers was serving in the US Treasury Department, first as Undersecretary for International Affairs, then as deputy to Treasury Secretary Robert Rubin

While Shleifer didn’t report to Summers — the Harvard project’s funding came from the State Department — the Treasury Department oversaw US economic policy in Russia.  Among insiders, the friendship was widely recognized.

Summers testified that, in the course of a day at the beach during this period (he didn’t remember the year), he urged Shleifer to check Harvard’s conflict of interest provisions — but that the government’s interest did not come up.

Far more difficult to explain is that Summers has remained close to Shleifer since the scandal started in 1997, and even after the government filed its lawsuit in Boston in September 2000. While interviewing for the Harvard presidency, he stayed at Shleifer’s house. After he got the job, he told Faculty of Arts and Science Dean Jeremy Knowles that it was important that Shleifer be retained by Harvard in the face of attractive offers from other schools.

In his testimony, he noted that Shleifer’s Russian counterparts may have preferred that he have a stake in the projects on which he was advising.  And he repeated the view of some members of the Harvard economics department that their colleague was being “screwed” by zealous government lawyers.

Summers officially recused himself from the matter only at the “insistence” of others among the seven-member Harvard Corporation (of which he is himself a member), according to a report last fall by Carla Anne Robbins of the Wall Street Journal. A university spokesperson said the decision was mutual.  (Robbins alone in the mainstream press has followed the story that she broke.)

Although Harvard also has a Board of Overseers elected by alumni, and although certain appointed committees are extremely influential in the governance of the university, the little self-perpetuating Corporation is the ultimate authority.  It meets around fifteen times a year.

Corporation membership has turned over more than usual in recent years.  Summers was named to replace retiring president Neil Rudenstine in March 2001. The next year, long-time Goldman Sachs co-chairman Robert Rubin, Summers’ former boss at the Treasury Department, replaced Robert Stone, a veteran of many years service to Harvard.

At the same time, Robert Reischauer, president of Washington’s Urban Institute, replaced Herbert “Pug” Winokur Jr, after the Connecticut financier resigned from the Corporation in the wake of the Enron disaster. (Winokur had been an Enron director and chair of the board’s compensation committee.)

In 2004, James Rothenburg replaced D. Ronald Daniel as Harvard’s treasurer and became an automatic fellow of the Corporation.  And last month Nannerl Keohane, former president of Duke University and Wellesley College, was named to replace Hanna Gray, when the president emerita of the University of Chicago steps down in June.

Attorney Conrad Harper of New York’s of Simpson Thatcher and Bartlett, a former legal adviser to the State Department,  James Houghton, chairman of the board of Corning, Inc., round out the membership. Harper joined in February 2000. Houghton, a member since 1995, is the senior fellow.

Meanwhile, Harvard general counsel Anne Taylor — a known antagonist of Shleifer — stepped down in June, 2002, saying that Summers should be free to assemble a team of his own. A year later, Robert Iuliano, her deputy, was named to succeed her.

In December, Harvard’s outside lawyers suffered a humiliating courtroom defeat in short trial meant to resolve whether Shleifer was “assigned” to Russia. According to the jury, he was.

Meanwhile, the bill of particulars that government offered to prove against Shleifer in a damages trial is extensive: that he ran his own business out of government offices; that he elbowed competitors out of the way; that he used USAID funds to buy the votes of Russian officials and legislators favorable to his cause; that he fired, demoted and threatened various Harvard employees who complained.

Shleifer replies that he was passionately advancing the cause of a market economy in the face of old-line communist resistance, and that desperate measures sometimes were required. In A Normal Country, scheduled to be published by Harvard University Press in March, he argues that the institutions that he helped shape during the 1990s have insured that pervasive centralization cannot stage a comeback, and that Russia’s escape from communism has been assured.

What are the chances that Corporation itself has begun to take a more vigorous interest in the Shleifer matter? What are the chances that changes in the mission of the endowment company going forward are one result? It is worth remembering how quietly, in the wake of the scandal, the Harvard Institute for International Development disappeared.

Rubin and Summers are heading the search for Jack Meyer’s successor.  But with both men apparently recused from the Shleifer matter, it is not at all clear who among the remaining five fellows has active oversight of the case. It is not clear who among Harvard administration is making day-to-day tactical decisions about its legal conduct.

Nor is it clear what if anything has changed in the university’s inner councils since Judge Woodlock found last summer that the university had only breached its contract with the government, and not committed the treble damages-fraud with which it had been charged — a reduction of something like $80 million in exposure. .

There are many easy-to-understand reasons for Harvard Endowment’s Meyer to wish to strike off on his own, after averaging 15 percent a year for 15 brilliant years. (Previously he was chief investment officer for the Rockefeller Foundation and, before that, deputy controller for New York City.). His decision, however, came as a surprise.

And students of economics will note that, if there were some sort of guilty secrets between Shleifer and those who in the ’90s were investing Harvard’s money in Russia, the situation would resemble the standard fable of the prisoners’ dilemma, in which two persons accused of wrong-doing find it easy cooperate in their denial — as long as they can freely communicate.  The standard tactic is to split the parties.

What if the people running Harvard are most of all concerned, not with the university’s reputation, but with its moral compass? Let’s see what happens next.