An investment firm partially owned and operated by the wife of Jones Professor of Economics Andrei Shleifer ’82 agreed last week to pay $1.5 million to the U.S. government to settle claims that it misused resources of Harvard’s federally funded project to rebuild the Russian economy in the 1990s.

The government has alleged that Cambridge-based FFIA, formerly named Farallon Fixed Income Associates, “improperly utilized and failed to pay for certain resources and equipment” belonging to the “Russia Project,” which advised Russia on its transition to capitalism from 1992 to 1997 and was funded by a $40 million grant from the U.S. Agency for International Development (USAID). FFIA has denied the allegations.

Shleifer and project administrator Jonathan Hay were found liable in June for conspiring to defraud the government while they ran the project, which was administered by the now-defunct Harvard Institute for International Development. Harvard was found liable for breach of contract because of Shleifer and Hay’s conduct, but the University was absolved of the charge of fraud in the case.

Hay and Shleifer were found liable for up to $102 million plus accumulated interest under the False Claims Act, and Harvard was found liable for up to $34 million plus interest for its breach of contract.

Shleifer’s wife, Nancy Zimmerman, was originally a defendant in that civil lawsuit due to her investments in Russia during the project, but the claims against her in that case were dismissed in December 2001.

The government threatened to sue her firm, FFIA, in 2000, and the sides have been in sporadic negotiations since then, according to FFIA lawyer Martin F. Murphy. The result was last week’s agreement, in which the government agreed not to pursue its claims against FFIA in return for the settlement payment.

Murphy wrote in an e-mail that the allegations are “completely without merit,” adding that FFIA made a “purely business decision” to settle.

“It might have cost more, in legal fees and in distraction to the business, to wage a long battle against the government than to pay the money and be done with it,” he wrote. “When the government doesn’t care about the truth, or the merits of the claims they bring, but people who run private businesses value their time and have to pay their lawyers, you will see perverse outcomes like this.”

The U.S. asserts that FFIA used “Russia Project” resources to found and run New World Capital (NWC), a Russian company that invested in Russian government bonds.

“NWC was used to purchase and trade Russian government bonds, including bonds known as “GKOs”, in a scheme to avoid paying Russian taxes on foreigners making such trades,” the U.S. said in a press release. “The United States alleges that FFIA thereby improperly diverted USAID-funded resources for its own purposes and profit.”

An assistant to Shleifer said he was traveling and could not be reached for comment.

—Staff writer Stephen M. Marks can be reached at marks@fas.harvard.edu.