The Securities and Exchange Commission charged former Democratic fundraiser Norman Hsu with operating a $60-million Ponzi scheme in a civil lawsuit filed Monday in Los Angeles.
Hsu, one of Sen. Hillary Rodham Clinton’s biggest fundraisers, is in federal custody, awaiting trial on criminal charges that he defrauded investors out of millions in the scam and that he made illegal campaign contributions to Clinton and others.
The SEC wants Hsu and his company, Next Components Ltd., to disgorge their ill-gotten profits. They charge that Hsu raised $60 million from investors by promising returns of 14% to 24% every 70 to 130 days for using their money to make short-term loans to businesses. Instead, Hsu allegedly used the investors’ money to support his luxury lifestyle, make political donations and pay returns to early investors.
“Hsu and his company used investor funds to make significant political contributions to prominent politicians,” said Linda Chatman Thomsen, director of the SEC’s division of enforcement. “He allegedly then used the veneer of respectability created by his political connections to persuade his investors that the investments he offered were legitimate. This deception convinced investors to continue to invest with Hsu, even as he and his company allegedly siphoned away investor funds to pay for his own extravagant lifestyle and to finance a Ponzi scheme.”
“Our goal is to get money back to investors when possible,” said John M. McCoy III, a trial attorney for the SEC.
Hsu started seriously raising money for Democrats in 2003 shortly after he began the alleged investment scheme, records show. He raised more than $800,000 for Clinton’s presidential campaign.
Sen. Clinton returned that money to donors after the Los Angeles Times revealed that Hsu was a fugitive from a 1991 theft charge in California arising from another scheme to defraud investors.
That disclosure caused Hsu’s more recent alleged business scheme to unravel.
Hsu is serving a three-year sentence on the 1991 fraud charges and is scheduled to go on trial in the federal criminal case Jan. 12.
“Mr. Hsu has pleaded not guilty to the criminal charges,” which he plans to address in early January, said Martin S. Cohen, a federal public defender who is representing Hsu in that case.
The federal indictment said that Hsu defrauded investors out of at least $20 million.