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Hsu is accused of Ponzi scheme

The Democratic donor reportedly confessed that his deals, which lost investors $60 million, were phony.

September 21, 2007|Tom Hamburger, Robin Fields and Chuck Neubauer | Times Staff Writers

NEW YORK — 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."

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