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O.C. investors accuse fundraiser Hsu of fraud

Suit says the ex-fugitive bilked $23 million from the group and required political donations.

September 22, 2007|Robin Fields, Dan Morain and Chuck Neubauer | Times Staff Writers

An Orange County investment company filed a lawsuit against disgraced fundraiser Norman Hsu on Friday, saying that he defrauded investors out of at least $23 million and dictated that they make contributions to Democratic candidates as a condition of doing business with him.

According to the suit, Hsu persuaded the company's operator that he was legitimate partly by taking him to Democratic Party events, where, the suit alleges, Hsu was thanked and praised by New York Sen. Hillary Rodham Clinton and California Atty. Gen. Jerry Brown, among others.

At Hsu's direction, the lawsuit says, the investors poured tens of thousands of dollars into Democratic coffers, delivering $30,000 worth of checks payable to Clinton's campaign on a single day.

The lawsuit brought by Briar Wood Investments, a Laguna Beach firm, provided the first detailed glimpse at the scope and nature of Hsu's activities in Southern California.

New York investors filed a similar suit against Hsu late last week and on Thursday, federal prosecutors unsealed a criminal complaint accusing the 56-year-old Hong Kong native of masterminding a national Ponzi scheme and reimbursing investors for political donations made in their names.

Hsu has been beset by legal troubles since late August, when reports in the Wall Street Journal and the Los Angeles Times cast suspicion on political contributions linked to him and revealed that he was a fugitive in a 1991 San Mateo County theft case.

On Friday, a San Mateo County judge ordered Hsu held without bail in that case, in which he pleaded no contest 15 years ago before he fled to Hong Kong.

The new civil case describes how Briar Wood's chief, Martin Waters, and about 60 others in Orange County became ensnared in investment deals that, according to federal authorities, Hsu has admitted were phony.

Waters, like Hsu, had been in the apparel business -- the two men met at a San Diego trade show in the 1980s -- and were brought together again in 2004 by Waters' former business partner.

Waters was told he was investing in high-interest loans to companies in need of short-term financing, the lawsuit says. He invested $10,000 in the first deal and participated in about 40 more over the next three years. The deals typically matured in about 100 days and had rates of return that topped 20%.

The investment opportunity spread by word of mouth, drawing in Waters' friends, family members, neighbors and acquaintances, said William Bollard, the attorney representing Briar Wood. Several of the investors were pipe enthusiasts who befriended Waters at a local tobacco store.

Eventually, the Orange County cluster grew so big that Hsu asked Waters to act as a conduit, establishing Briar Wood to collect checks from other investors and issue postdated checks to them, which investors could deposit on the date the deals matured.

According to the lawsuit, when Hsu's problems surfaced late last month, he tried to persuade Waters that the investment business was "all taken care of." He also tried to reassure Waters during a meeting at a Beverly Hills hotel soon after being rearrested in the 1991 theft case.

Two days later, Hsu's checks bounced on a deal set to mature Sept. 5. Briar Wood investors are out at least $3.6 million invested in that deal as well as more than $19 million invested in three others that have not matured, the lawsuit says.

Waters declined to speak about the case Friday. Hsu spokesman Bob Emmers of the crisis communications firm Sitrick & Co. also declined to comment.

Bollard said Hsu's machinations had Waters feeling "completely taken" and horrified at the hardships suffered by others in his group. One investor sold a business to invest with Hsu, Bollard said. Others took out second mortgages.

"These are not wealthy, sophisticated investors," Bollard said. "This is not a group of people who had a lot of money to lose."

The suit lays out how Hsu attempted to leverage his growing profile as a fundraiser to draw in investors and to tap his network of investors for political contributions.

It says Waters invested with Hsu in part because "prominent persons, including Sen. Hillary Clinton, New Mexico Gov. Bill Richardson, California Atty. Gen. Jerry Brown, national Democratic political advisor James Carville, film director Steven Spielberg, actor [Tobey] Maguire, grocery store magnate/billionaire Ron Burkle and others introduced and/or endorsed Hsu as a friend, colleague and trusted associate."

Hsu frequently invited Waters, a registered Republican, to star-studded Democratic Party events as proof of his stature and credibility, the lawsuit says.

At one event for which no date is given, the suit says, Hillary Clinton spoke via videoconference, singling out Hsu for thanks. At another event, a 2006 fundraiser in San Francisco, Waters sat at a table with Brown, who "praised and endorsed Hsu."

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