Harvard filed arguments in federal court yesterday disputing that the conduct of two University affiliates undermined a U.S. government-funded economic reform program in Russia and should cost the University $102 million in penalties.

In a two-year-old lawsuit, the government argues that private investments in Russia by the program’s lead advisors, Economics Professor Andrei Shleifer ’82 and former employee Jonathan Hay, violated conflict of interest provisions and compromised the U.S. mission of guiding Russia’s transition to capitalism.

Yesterday’s brief was a response to a December filing by the government on the extent of possible damages stemming from the case.

The government wants restitution for the millions it put into the project, arguing that a “disregard for ethics” taught Russians a poor lesson.

The filings come as a judge considers motions from both sides asking for a summary judgment on whether Harvard and its employees are liable for any damages at all.

In yesterday’s brief, the University argued that even if it was liable for Shleifer and Hay’s investments, the now-defunct Harvard Institute for International Development (HIID) still upheld the majority of its agreement to advise Russia.

“The government’s claim that the work on this project was valueless is an insult to the scores of HIID employees and consultants who gave their souls to this project,” said Boston attorney David J. Apfel, who is representing the University.

The University wrote in the brief that the government could not feasibly claim that personal investments rendered the HIID program “worthless” when the government agency in charge of the program had lauded its success in funding requests to Congress.

Representatives of the U.S. Attorney’s Office in Boston were unavailable for comment last night.

If it is found liable for breach of contract, the government argued in December, Harvard would have to repay the $34.8 million the government paid out from 1994, the date of Shleifer’s first investment, to 1997, when the project ended.

The government is also seeking damages under the False Claims Act (FCA), which could require penalties of triple the original grant.

At an October hearing on the motions for summary judgment, U.S. District Court Judge Douglas P. Woodlock indicated that he was more inclined to believe Harvard had broken the contract than that it had intentionally falsified its funding requests—the basis of the FCA claim.

The government argued that if it won liability under the FCA, it would be automatically entitled to triple restitution, avoiding the necessity for a discovery period on damages. Woodlock allowed the two sides to prepare briefs on the damage question while he studied the liability question.

Hay and Shleifer filed separate briefs yesterday. If the counts against Harvard were dismissed, they could still be found personally liable.

According to government documents, the two invested hundreds of thousands of dollars in Russian mutual funds and equities, beginning in 1994, until the government began investigating HIID—originally considering criminal charges—in 1997.

Harvard dismissed Hay from the University in 1997, arguing that the investments did not violate its agreement with the government but did violate Harvard’s internal conflict-of-interest rules. Shleifer, however, remains on the Faculty.

In November, the University settled a related case, with Maine mutual funds firm Forum Financial Group, for an undisclosed sum. The suit had argued that Hay and the University defrauded Forum of millions of dollars in profits from the rights to Russia’s first mutual funds firm.

—Staff writer Elisabeth S. Theodore can be reached at theodore@fas.harvard.edu.