The conflict started when these members of HIID's Russian team helped develop and fund an organization called the Institute for a Law-Based Economy (ILBE), which was created to write economic legislation and provide advising in Russia.

With Hay's support, the U.S. Agency for International Development (AID) provided some backing for ILBE.

But in the late 1990s, Schleifer's wife and Hay's girlfriend, both experienced professional investors, used the services of ILBE to inform their own companies' investments.

At the time, Donald Pressley, an AID official, told the Wall Street Journal that AID may have "opened a gray area" when it allowed both non-profit and for-profit investors--like Schleifer's wife and Hay's girlfriend--to use ILBE.

"But when we agreed to the establishment of ILBE-Consulting, we did not expect nor would we have approved of it providing services to the close associates or family members of AID-financed advisers," Pressley told the Wall Street Journal.

According to Harvard's rules about conflict of interest at HIID, any staff members at the Institute, as well as members of their families, are not allowed to make investments in the countries where they work.

In light of the scandal, AID rescinded the remaining $14 million of their $57 million fund for the project. HIID terminated both Hay and Schleifer. However, Schleifer remains a tenured professor of economics at the University.

A Justice Department investigation into the events in Russia is ongoing. The University denies the Russia scandal has anything to do with HIID's dissolution.