Clinton's Campaign To Return $850,000

Although Clinton will return the money raised by Hsu, Wolfson said the individual contributors could make new donations.

"We will accept their contributions and ask them to confirm for our records that they are from their own personal funds," he said in an e-mail.

Clinton's campaign chairman, Terence R. McAuliffe, declined requests to explain how Hsu had become so prominent in her fundraising.

A portion of the money, at least $29,300, will be returned to members of a single family -- the Paws -- who live modestly in a small house near the San Francisco airport. The Paw family members first attracted attention to Hsu because they were writing large checks to the Clinton campaign even though they held such modest jobs as a postal carrier and a nurse.

It is illegal for a bundler to reimburse donors for the campaign checks they write because it would violate strict federal limits on how much an individual can donate to a candidate.

Lawrence Barcella, a Washington lawyer who has defended Hsu against allegations that he was funneling money back to the Paws in exchange for their donations, said the Paws had other sources of income to support their hefty schedule of giving, which included more than $200,000 in checks to scores of other Democratic candidates over the past four years.

Others expected to get their money back include a range of employees for various firms -- most in the apparel industry -- that have been connected to Hsu. And there are many more who have regularly appeared among Hsu's stable of donors, such as the owners of a San Francisco gift shop, the Lim family, whose connections to him are unclear.

A report emerged yesterday that the Clinton campaign ignored warnings about Hsu. Earlier this summer, Democratic Party officials raised questions with the campaign about whether Hsu had been involved in an illegal Ponzi scheme, according to a source familiar with the exchange. (The Los Angeles Times first reported yesterday that a Clinton finance director for the West Coast brushed aside questions about Hsu.)

The source, who would speak only on the condition of anonymity, said the Clinton finance team did a second search of public records looking for any problems based on the allegations and found none. The campaign did not directly talk to Hsu about the allegations, the source said.

Kent Cooper, the Federal Election Commission's former chief of public disclosure, said Clinton's move to shed the tainted money was "a stunning development" certain to affect other campaigns in what is shaping up to be the most expensive election in history. The presidential candidates in both parties raised about a quarter-billion dollars in the first half of this year.

"The financial controls of these campaigns as they get bigger and bigger and raise more money need more resources," Cooper said. "It is a smart move by the Clinton campaign . . . to try to get ahead of the issue and claim some leadership on double-checking fundraisers and activities.

"To seek permission to do criminal backgrounds indicates a willingness to take more responsibility for the personal actions of these big fundraisers out in the field and will bring extreme pressure on other candidates to more carefully monitor and control their fundraisers," he said.

Clinton had raised roughly $52 million for her campaign through the end of June. Her chief rival for the Democratic nomination, Sen. Barack Obama (D-Ill.), had raised more than $57 million at the same point.

Hsu, who grew up in Hong Kong and moved to the United States in the 1969 to attend the University of California at Berkeley, came onto the scene as a fundraiser in 2003 when he began raising money for Sen. John F. Kerry's presidential bid.