Confronted with the possibility that disgraced fundraiser Norman Hsu might be running an illicit investment scheme, Sen. Hillary Rodham Clinton’s presidential campaign announced late Monday that it was returning $850,000 from 260 donors associated with Hsu.
The amount is one of the largest ever returned by a single candidate, and the action marked a sharp turn for the Clinton campaign.
The New York senator’s campaign staff had pondered the move for several days but acted after Clinton awoke Monday to a report in the Los Angeles Times that the FBI was examining a Hsu venture in which some investors said they had been pressured to make political donations to her.
“She saw that an investigation was proceeding and personally instructed us to sever all connections with Hsu and his network of donors,” said a campaign source familiar with the events who was not authorized to discuss internal campaign dealings.
Before the announcement, new evidence surfaced that the Clinton camp had dismissed allegations about Hsu made by a Southern California businessman. In an e-mail obtained by The Times, a Clinton campaign staffer told a California Democratic Party official in June that the businessman’s concerns were unwarranted.
“I can tell you with 100 certainty that Norman Hsu is NOT involved in a ponzi scheme,” wrote Samantha Wolf, who was a campaign finance director for the Western states. “He is COMPLETELY legit.”
In fact, Hsu was a fugitive wanted on a 15-year-old bench warrant stemming from an early 1990s investment fraud case.
The businessman’s query prompted Clinton staffers to review public records about Hsu, but no problems surfaced, the campaign source said. In part because of that incident, the campaign also announced Monday that it would institute more stringent procedures to vet major contributors, including running criminal background checks.
Stanley Brand, a former House counsel who often represents legislators in ethics matters, called the Clinton campaign’s decision “a ground-shifting event,” though not a step he would have recommended.
“I understand it’s politically driven. They don’t want to be tainted,” he said. “But they’re going to give back a lot of money if they do this every time there’s an allegation against a fundraiser.”
Hsu, 56, burst from nowhere three years ago to become a fundraising heavyweight, bringing in more than $1.2 million for Clinton and other Democrats. But his public fall from grace led numerous campaigns to return his direct donations. Until now, most had not returned money from his network of donors.
Hsu’s case has become a spectacle in the last two weeks. At first he explained his fugitive status as a misunderstanding; he then failed to show up at a San Mateo County hearing. He was rearrested last week in Grand Junction, Colo., where he was hospitalized after acting erratically on an eastbound train.
In recent days, the FBI has been talking to participants in a current Hsu business venture, questioning whether it was a legitimate bridge-loan investment pool, as those involved were told, or a Ponzi scheme similar to the one Hsu ran in the past.
The Clinton campaign decided not to wait for details about the venture to emerge.
“We have decided out of an abundance of caution to return the money he raised for our campaign,” campaign spokesman Howard Wolfson said. Wolfson refused to provide a list of the 260 donors who would get their money back.
Monday’s announcement marks the latest in a series of quick reversals by the Clinton campaign, which first refused to return any Hsu-related contributions after a Wall Street Journal article suggested some were questionable. Then, learning that Hsu was considered a fugitive, the Clinton campaign announced it would return $23,000 contributed personally by Hsu.
Beyond his own contributions, Hsu was valuable as a so-called bundler, a person who collects checks from others and provides a stack of them to candidates. Bundlers have become especially important since recent campaign finance reform laws limited the amount a single individual can contribute to political causes.
Nearly all major presidential campaigns rely on bundlers, and most do the same minimal background checks that the Clinton campaign had employed.
Generally, campaign officials said, those background checks involve a campaign worker running the name of a major donor or bundler through a public database such as LexisNexis, which provides access to newspaper, magazine and journal articles, as well as congressional transcripts and television broadcasts.
Questions about Hsu were first raised in June by an Irvine businessman, Jack Cassidy, who contacted the Clinton campaign and party officials about his suspicions, which he had heard about through a friend.
“There is a significant probability that a man using the name of Norman Hsu is running a Ponzi scheme,” Cassidy wrote to a California Democratic Party official on June 18 in an e-mail obtained by The Times. Describing the deal he understood Hsu was offering to investors, he wrote: “The math does not work!”
The party official passed Cassidy’s concerns to Samantha Wolf, who rejected them.
On June 20, Cassidy sent an e-mail directly to Wolf.
“I am more than ever convinced that a man claiming to be a big fundraiser for Hillary Clinton is running a Ponzi scheme,” he wrote. He said he feared that an associate “may lose her home” because of her participation in the scheme and cautioned Wolf that Hsu may be “using your good name in vane.”
Cassidy said Wolf did not respond to the e-mail warning.
On Monday, Wolf declined to discuss Hsu or Cassidy’s e-mails. She no longer works for the Clinton campaign, but did as recently as July. Before becoming a West Coast finance director, Wolf, a 2006 college graduate, was deputy Midwest/Northern Virginia finance director at Hillary Clinton for President.
The Hsu saga has evoked memories of scandals that plagued President Clinton’s 1996 reelection drive, in which donors contributed large amounts to the campaign and the party under embarrassing circumstances.
Anthony Corrado, a campaign expert at Colby College, said that though the refunds announced by Clinton on Monday were “certainly significant,” he doubted that the loss of $850,000 would “have a material effect” on the senator’s campaign, which has raised more than $55 million so far. He predicted that Bill Clinton’s upcoming fundraiser for his wife, aimed at expatriates in London, would replace the loss.
Fields and Neubauer reported from Washington and Morain from Sacramento. Times staff writer Tom Hamburger in Washington and researcher Janet Lundblad in Los Angeles contributed to this report.