Epstein says he had tried to help "somebody else" out by guaranteeing the loan. He would not say who the other person or people had been.

"A lot of people benefited. I thought it was a very good thing to do," says Epstein. "I think everything has been done in a highly ethical manner."

According to Los Angeles attorney Richard Burdge, who represented Manufacturers Bank during the case in California, and a Business School official familiar with the situation, Epstein's California investment firms fell apart with the real estate market.

"When the real estate market went into the tank, the companies couldn't repay the loans," says Burdge. "Since he was in the companies and guaranteed them, we got a judgment against him for defaulting, too."

Epstein says the Middlesex court gave him a victory by ruling that Manufacturers could not dock his Harvard paycheck. He says the bank could have easily contacted him in New York. But Burdge disagrees, saying the $13,000 annual settlement will ensure the bank gets the money from Epstein even after he leaves Harvard.

"We didn't know where he was for a couple of years," says Burdge. "The court directed him to pay us the money instead of having the University give us the money from his paycheck. They ordered him to pay, and he has been."

James L. Rogal, his Boston lawyer, says the bank's charge that Epstein was a risk to flee the state was unfounded. He says Epstein's business dealings were ethical.

"As you know, Dr. Epstein travels all over the place," says Rogal. "I don't think there's an issue of avoiding litigation. In fact, he appeared for his court date."

The first anyone at the Business School learned of this was in March of this year, when Manufacturers Bank filed suit in Middle-sex County. "There was no reason to [inform Harvard], in my opinion," Epstein says.

But the lawsuit touched off a review of the situation by officials from both inside and outside the Business School. The review, which consisted of informal interviews with Epstein and financial experts, involved several officials, including University Attorney Allan A. Ryan Jr., Senior Associate Dean Robert H. Hayes, Assistant Dean of Educational Affairs Deborah N. Mauger and Dickinson Professor of Accounting Robert S. Kaplan, the head of Epstein's department.

"We were very concerned about the allegation of fraud," says Hayes. "But we talked to Professor Epstein, talked to people in California. Mr. Ryan called some of his friends out in California, and they said there was nothing like this involved."

Hayes and other Business School officials say they are unfamiliar with many of the details of Epstein's situation. Hayes and Kaplan both say they based their decision to keep the professor largely on their impression of him as a person, and neither administrator says they recall Epstein's specific role in the two investment firms.

"As I remember it, he tried to do something good for some people so they wouldn't lose money," says Kaplan. "There was a partnership in which he was involved."

Ryan says cases like Epstein's are common, and he says the matter was little more than a dispute between Manufacturers Bank and the professor.

"The existence of a legal suit does not disqualify a person from being a faculty member," says Kaplan. "If that were the case, a lot of us couldn't teach here."