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THE NATION

Donor's business under FBI scrutiny

An investment pool run by Norman Hsu raised profits, and questions.

September 10, 2007|Robin Fields, Chuck Neubauer and Tom Hamburger | Times Staff Writers

WASHINGTON — The FBI has begun examining a murky business venture run by disgraced Democratic fundraiser Norman Hsu that paid out hefty profits over the last several years to investors, some of whom were pressed to make contributions to Hillary Rodham Clinton and other political candidates.

Sources told The Times on Sunday that a number of participants and their associates in Southern California and elsewhere had been in contact with the FBI about an investment pool operated by Hsu.

One associate, Irvine businessman Jack Cassidy, said he had tried to warn authorities and the Clinton campaign as early as June that he feared Hsu was running an illicit enterprise, but had gotten no response.

"Nobody picked up the ball," said Cassidy, who was not an investor but heard about Hsu's business from a friend.

Clinton campaign spokesman Howard Wolfson declined to respond to Cassidy's claim, saying only that the campaign had conducted a background check of Hsu, who has emerged in the last three years as one of the Democratic Party's biggest fundraisers.

Hsu, 56, has contributed or raised more than $1.2 million for Clinton and other Democrats, but has become a source of embarrassment since The Times revealed in late August that he was a fugitive wanted on a 15-year-old bench warrant stemming from an early 1990s investment fraud case. He called the matter a misunderstanding, then failed to show at a San Mateo County hearing and was rearrested last week in Colorado after falling ill there on an eastbound train.

A spokesman for Hsu had no comment when asked about the FBI's interest in Hsu's current business. An FBI official also declined to comment.

Since Hsu's arrest, there has been much speculation about the source of his wealth and how he was able to put together a broad network of donors, many of whom had never given to political campaigns. Investigators are looking into whether several of the donors who appeared to be of modest means contributed their own money to the candidates or were reimbursed, which would violate federal campaign law.

Investigators as well as investors are questioning whether Hsu's current business was a legitimate bridge-loan investment pool, as those involved were told, or a Ponzi scheme.

Hsu, a self-described apparel executive, appears to have operated the investment business for at least four years under such names as Next Components and Components Ltd., according to sources.

His pitch for investors and his request for political donations reinforced each other, as he represented himself as a wealthy businessman and big player in Democratic politics, several investors said.

They were told their money was going into loan pools, some as large as $15 million, for businesses that needed short-term financing. Investors typically made at least a 6% profit in each 90-day period.

Several said they had received few specifics about the investments and believed in their legitimacy largely because they were given 1099 tax forms and paid taxes on their earnings.

Now they say they are fearful that they will never recoup their remaining investments; some wonder if the bridge-loan pool ever existed or if they were just paid with money coming in from new investors. In the early-1990s criminal case against Hsu, he solicited investors for a venture purchasing and reselling latex gloves; investigators determined he never bought the gloves and accused him of running a Ponzi scheme.

The New York Times reported Sunday that financial records from one of Hsu's companies show a similar pattern of money flowing to and from people who later made political donations through Hsu to Clinton and others.

Hsu's attorney has denied that he reimbursed anyone for their donations.

Though the details of Hsu's investment business remain unclear, campaign finance records show that his investors donated tens of thousands of dollars to candidates he supported.

One investor said she made donations solely to stay in Hsu's good graces and knew others who did so as well.

"They knew they had to do it or they were out," said the investor, who asked to remain anonymous. "There were people who maxed out every credit card they had to give the maximum $4,600 in donations."

She said she opposed Clinton's presidential bid but gave money to her campaign anyway. "I can't stand the woman," the investor said.

Their donations were among those delivered in bundles by Hsu, making him especially valuable to candidates because recent changes in campaign finance laws have sharply limited the amount individuals can contribute.

Hsu has been hospitalized in Grand Junction, Colo., since Thursday after behaving erratically on a train bound for Denver. His condition was upgraded to "good" on Sunday, St. Mary's Hospital officials said.

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robin.fields@latimes.com

chuck.neubauer@latimes.com

tom.hamburger@latimes.com

Times staff writer Dan Morain in Sacramento contributed to this report.

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