By Matthew Mosk
Washington Post Staff Writer
Friday, September 21, 2007
Prominent Democratic fundraiser Norman Hsu violated federal election laws by reimbursing several donors for the political checks they wrote, and extracted campaign donations from others by threatening to cut their ties with a highly lucrative Ponzi scheme he oversaw, according to a criminal complaint filed by the Justice Department yesterday.
A federal fraud case that the U.S. attorney for New York's Southern District unsealed against Hsu suggests for the first time why he in a short period of time became one of the nation's most prolific bundlers of campaign funds. He passed $850,000 from multiple donors to Sen. Hillary Rodham Clinton (N.Y.), a Democratic presidential candidate, and tens of thousands of dollars to other Democrats.
The 16-page complaint, signed by an FBI agent, says that Hsu "pressured victims" into making the contributions "in an effort to raise his public profile and thereby convince more victims to invest in his fraudulent investment scheme." That scheme defrauded people across the United States of more than $60 million, it says.
At a news conference in New York, U.S. Attorney Michael Garcia said that although the scheme's overall purpose was to support a "lavish lifestyle," Hsu gave money to political candidates in an apparent attempt "to purchase a place on the celebrity campaign circuit," the Associated Press reported.
Neither Hsu, his attorneys or a publicist he has hired replied directly to the government's allegations. Spokesman Robert Emmers said only that Hsu is eager, first, to dispense with the legal entanglements stemming from Hsu's 15-year-old guilty plea to theft charges in California that arose from a similar investment scheme.
Hsu was apprehended at a hospital in Colorado last week after he fled a warrant demanding that he serve a prison sentence from that conviction. Yesterday, he was returned to California under guard.
Campaign finance experts said that the ease with which Hsu turned a steady flow of campaign donations into access to presidential candidates, senators and other dignitaries -- which in turn furthered his continuing solicitation of investors -- offered a cautionary tale about the rising prominence of bundlers in the political process.
"We now have a dangerous and corrupting system at work in our presidential election in which the pressures of unlimited, arms-race spending has put the highest premium on presidential candidates finding bundlers who can raise huge amounts of money and the lowest premium on filtering out problematic bundlers," said Fred Wertheimer, president of Democracy 21, a group dedicated to campaign finance reform.
The complaint against Hsu describes how FBI agents unraveled his financial and political operations using bank records, interviews with victims and the detailed ledgers he kept to track his campaign contributions.
After Hsu was detained, the complaint says, he waived his right to counsel and "admitted to the FBI agents that he used Components Ltd. and Next Components Ltd." -- two of his companies -- "for 'phony' deals. . . . Hsu also admitted that the phony deals involved investments in the sale and distribution of items that did not actually exist, and that he used money he obtained from newer investors to pay initial investors."
The complaint states that Hsu "admitted that he made implied threats to his investors to pressure them to contribute to political candidates he supported." It quotes several investors as aying that they have no interest in politics, but that Hsu threatened to cut them off from future lucrative investments if they did not make the contributions.
The complaint says that Hsu held five meetings in New York with an acquaintance -- identified only as "Witness-1" -- and each time supplied that person with a list naming the politicians who should receive campaign contributions. "Hsu wrote checks to Witness-1, directly reimbursing Witness-1 for the political contributions," the complaint says.
In another case, he allegedly told an investor, identified as "Victim 5," that for them to continue to do business, the investor needed to donate to candidates of Hsu's choosing. "Hsu reimbursed Victim 5 by adding the amounts from the political contributions to checks paying Victim 5 profits and principal on his/her investments with Hsu."
After everything collapsed, the complaint states, an unnamed investment fund held checks from Hsu worth more than $40 million, to be drawn from a bank account containing $83,000.
Ronald Minkoff, an attorney for Source Financing Investors, which invested in what was thought to be an apparel business run by Hsu, said that his clients have been cooperating with the FBI probe, and that he is pleased to learn the criminal investigation is moving ahead. The firm filed a lawsuit against Hsu on Wednesday to recover its investment.
Minkoff said all investors who have lost money with Hsu are trying to determine what happened to the $60 million. Some of the money, he said, was used to pay off earlier investments. He said he has been informed that a checkbook recovered by the FBI showed a balance of $6 million.
The location of other funds remains a mystery. Hsu lived for a time in Hong Kong, where he registered several businesses under an address in an upscale, residential apartment building overlooking Hong Kong harbor. But the companies appear to have been dissolved when Hsu declared bankruptcy there in 1998.
When Hsu was caught by authorities after falling ill on an Amtrak train in Colorado earlier this month, he had with him a suitcase that contained $7,000 in cash and his passport, according to the federal complaint. "It will be nice to have Mr. Hsu here in New York to face both our civil and criminal justice systems," Minkoff said.
Staff writer John Solomon, correspondent Edward Cody in Hong Kong and researcher Madonna Lebling contributed to this report.