Names In the News

Harvard Settles Fraud Claim

Harvard University, economics professor Andrei Shleifer and former Harvard employee Jonathan Hay will pay $31 million to resolve federal charges that they fraudulently billed the U.S. Agency for International Development (USAID).

Harvard fired Hay after an internal investigation, but Shleifer, a close personal friend of Harvard President Lawrence Summers, continues to teach there.

Shleifer and Hay were paid under a USAID grant to lead a project to advise Russia on privatization following the fall of communism.

Federal officials alleged that the two were self-dealing by using their positions, as well as USAID-funded resources, to advance their own personal business interests and investments and those of their wives and friends.

Their self-dealing activities included using their influence over the Russian Securities Commission, to which they were key advisers, to secure for themselves and their wives the first ever launched and licensed mutual fund in Russia.

To settle civil charges and following a judge’s finding of liability against the university and its employees, Harvard will pay $26.5 million, Shleifer will pay $2 million, and Hay will pay between $1 million and $2 million, depending on his earnings over the next 10 years. FFIA, a company owned by Shleifer’s wife, Nancy Zimmerman, has already paid $1.5 million to settle the charges against it. Shleifer and Hay were disbarred by USAID.

“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,” says U.S. Attorney Michael Sullivan in Boston.

Sony’s Payola

Sony Entertainment agreed in July to stop funneling payola to radio music programmers.

Under the agreement with New York Attorney General Eliot Spitzer, Sony, one of the world’s leading record companies and owner of a number of major record labels, agreed to stop making payments and providing expensive gifts to radio stations and their employees in return for “airplay” for the company’s songs. Such payoffs violate state and federal law.

An investigation by Spitzer’s office found the company offering an array of inducements for airplay for songs of its artists:

• Outright bribes to radio programmers, including expensive vacation packages, electronics and other valuable items;
• Payments to radio stations to cover operational expenses;
• Retention of middlemen, known as independent promoters, as conduits for illegal payments to radio stations; and
• Payments for “spin programs,” airplay under the guise of advertising.

E-mail correspondence obtained during the investigation shows that company executives were well aware of the payoffs and made sure that the company got sufficient airplay to justify these expenditures.

One Epic employee who was trying to promote the group Audioslave to a programmer with the Clear Channel radio giant asked in an e-mail, “What Do I Have to Do to Get Audioslave on WKSS this Week?!!? Whatever you can dream up, I can make it happen.”

Spitzer alleged that the illegal payoffs for airplay were designed to manipulate record charts, generate consumer interest in records and increase sales.

Iraq Funds Gone Missing

U.S. federal auditors have referred more than a hundred contracts, involving billions of dollars paid to U.S. personnel and corporations in Iraq, for investigation and possible criminal prosecution.

They have also discovered that $8.8 billion that passed through the new Iraqi government ministries in Baghdad while Paul Bremer was in charge of the Coalition Provisional Authority (CPA), is unaccounted for, with little prospect of finding out where it went.

That’s according to a July report by Ed Harriman in the London Review of Books. The rip-off is of Iraqi monies.

“Congress, it’s true, voted to spend $18.4 billion of U.S. taxpayers’ money on the redevelopment of Iraq,” Harriman writes. “But by June 28 last year, when Bremer left Baghdad two days early to avoid possible attack on the way to the airport, his CPA had spent up to $20 billion of Iraqi money, compared to $300 million of U.S. funds.”

Money flowed without even minimal accounting measures in place. Writes Harriman, “Paul Bremer, the American pro-consul in Baghdad until June last year, kept a slush fund of nearly $600 million cash for which there is no paperwork: $200 million of this was kept in a room in one of Saddam’s former palaces, and the U.S. soldier in charge used to keep the key to the room in his backpack, which he left on his desk when he popped out for lunch.”

One key focus of U.S. auditors now trying to find out what happened to the billions missing in Iraq: Halliburton unit Kellogg Brown & Root (KBR). Harriman writes of the July 2004 General Accounting Office report which found that in the first nine months of the occupation, KBR was allowed a free hand in Iraq: a free hand to bill the Pentagon without worrying about spending limits or management oversight or paperwork.

— Russell Mokhiber