Hsu is accused of Ponzi scheme

Times Staff Writers

The U.S. attorney here on Thursday charged enigmatic Democratic fundraiser Norman Hsu with masterminding a massive Ponzi scheme that defrauded investors from New York to California out of more than $60 million, while pressing many to make campaign contributions to Sen. Hillary Rodham Clinton and other politicians.

The case, which came together with surprising speed, includes Hsu’s confession to the FBI that his investment deals were “phony,” officials said in unsealing the charges.

As Hsu’s apparent scam has unraveled, it has left perhaps hundreds of investors across the country in a panic. A group in the New York area said it lost at least $40 million. Hsu reportedly took in millions more from about 60 investors in Orange County.

One Orange County investor said that he gave Hsu $90,000 from personal savings and his pension program, although he received almost no information about where his money was going.


“That’s how foolish I was,” he said, declining to speak on the record because of the continuing investigation.

The federal charges were announced on the same day that Hsu was extradited from Grand Junction, Colo., to California on a fraud charge from which he fled 15 years ago. The once-dapper 56-year-old Hong Kong native wore a black long-sleeved T-shirt and jeans as sheriff’s deputies turned him over to California authorities. He was put on a plane in shackles

Now the 1991 case -- in which Hsu fleeced investors in a similar scheme -- seems minor in comparison to the federal allegations.

U.S. Atty. Michael J. Garcia of the Southern District of New York unsealed a 16-page complaint Thursday charging Hsu with mail fraud, wire fraud and violating the Federal Election Campaign Act by reimbursing some associates for their political donations. If convicted, he could face up to 45 years in prison.

“This case is about greed,” the New York prosecutor said in a news conference. Hsu sought financial gain, he said, and contrived “to purchase a place on the celebrity campaign circuit.”

Although prosecutors declined to specify the exact locations or provide names of Hsu’s victims, the Los Angeles Times has traced his alleged pyramid-style scheme to clusters of friends and acquaintances around New York and the Bay Area, as well as Orange County.

In each area, investors say Hsu lured them with promises of a high rate of return on deals to provide short-term financing to apparel manufacturers and other businesses.

Until recently, participants received their promised profits -- often a 6% return the first month. That encouraged them to invest more and to involve their friends and families in the enterprise.


In fact, prosecutors said, there were no financing deals and no real economic activity.

Although Hsu was unknown on the national political scene before 2003, his ability to provide campaign donations whenever he was asked earned him invitations to exclusive events with Bill and Hillary Rodham Clinton and their friends.

Sen. Clinton’s top campaign aide, Patti Solis Doyle, and three associates spent several days in Las Vegas as Hsu’s guests to celebrate the New York Democrat’s 2006 reelection.

Citing unnamed witnesses and victims, Garcia described how Hsu became such a reliable donor: He pressured investors to make campaign contributions. In at least two cases, he used investors as “straw donors” -- reimbursing them for donations made in their name, a violation of federal election law.


“Hsu made victims believe that failure to make political contributions to candidates he supported would jeopardize their investment relationship with him and put their money at risk,” the complaint said.

At the news conference, Garcia said that prosecutors had dealt with only one campaign so far -- Clinton’s -- and that the senator and her staff had cooperated fully.

Last week, after The Times reported that some Hsu investors had complained of being pressed to make contributions, Clinton’s campaign said it would return $850,000 from about 260 donors associated with him.

On Thursday, Clinton’s communications director, Howard Wolfson, said the money was given back “out of an abundance of caution.”


“Obviously, these are very, very serious charges,” he said.

In an interview on CNN, Clinton said she did not anticipate that Hsu’s case would negatively affect her presidential bid.

“Unfortunately, none of us caught the problems that were there,” she said. “This happened to a lot of campaigns.”

FBI agents said that after Hsu was arrested this month in Colorado, he asked to talk with them -- without his attorneys present -- and waived his right to counsel. During the conversation, the complaint said, he confessed that the deals into which his network of investors had poured millions “did not actually exist.”


Among the items Hsu was carrying inside a locked suitcase at the time of his arrest, the complaint said, were hand-written ledgers showing “specific amounts of campaign contributions to be made by specific victims on behalf of various candidates for federal office.” FBI agents also recovered checkbooks, bank receipts, hundreds of thousands of dollars in checks, $7,000 in cash, a Cartier watch and Tiffany jewelry.

Prosecutors said Hsu had cultivated his high-flying political profile, at least in part, to give himself credibility with potential investors.

One of his biggest targets apparently was a New York private-equity fund called Source Financing Investors -- which claimed in a lawsuit filed in New York on Wednesday that Hsu owed its investors $40 million. The federal complaint appeared to be drawn in part from details provided by plaintiffs in that suit.

In Southern California, one participant said he started investing in Hsu’s deals in 2003, making out checks worth several hundred thousand dollars to a New York-based company called Components Ltd., which authorities now believe to be a shell.


After the initial deal panned out as promised, the investor took part in about four deals a year, rolling over principal and profits. Now, he said, he is out more than $1 million.

Hsu was flying high with the Clintons and with his investors until a few weeks ago, when first the Wall Street Journal and then The Times reported details about his activities.

After The Times revealed that Hsu was a fugitive from the grand theft case, he agreed to appear at a San Mateo County court hearing. Instead of showing up, he fled again. He was removed from an eastbound train in Grand Junction after falling ill. Passengers reported that he was behaving strangely and was in apparent distress.

Before boarding the train, Hsu had sent letters appearing to indicate that he planned to commit suicide. The letters turned up in the offices of charities and political campaigns he had supported.




Hamburger reported from New York, Fields from Los Angeles and Neubauer from Washington. Times staff writers Dan Morain in Sacramento and Peter Nicholas in New York and special correspondent Mike Saccone in Grand Junction contributed to this report.