Norman Hsu
Encyclopedia
Norman Yung Yuen Hsu born October 1951, is a convicted pyramid investment
promoter who associated himself with the apparel industry. His business activities were intertwined with his role as a major fundraiser
for the Democratic Party
, and he gained notoriety after suspicious patterns of bundled campaign contributions were reported in 2007. Subsequently he was discovered to have been a long-time fugitive in connection with a 1992 fraud conviction. After turning himself in to California authorities in 2007 he fled the state again and was quickly recaptured.
The U.S. Justice Department investigated whether Hsu illegally reimbursed political donations by associates and formally charged him with fraud. On November 27, 2007, a federal grand jury indicted Hsu on charges of violating federal campaign finance
laws and defrauding investors "out of at least $20 million."
, though his family was originally from Shanghai
. At age 18, he emigrated to the United States and obtained a B.S.
degree in computer science
from the University of California, Berkeley
in 1973. Hsu married in 1974 and received a California real estate license
in 1976. In 1981, he completed an M.B.A. from the Wharton School
. He and other Hong Kong partners formed the sportswear company Laveno in 1982, which went bankrupt in 1984. He then created other sportswear companies, including Wear This, Base, and Foreign Exchange. He engaged in other businesses as well, including clothing stores and restaurants. During this time, he became a naturalized American citizen
.
, declared a bankruptcy, stating that he was practically destitute, with no job, no income, and few possessions other than an SUV and a ring. That same year, he was also divorced as well as allegedly kidnapped by San Francisco Triad society gang leader Raymond Kwok Chow
. In 1991, California authorities brought fraud charges against him, describing his operation as a Ponzi scheme
. Specifically, authorities claimed Hsu had not engaged in any legitimate business activity, but instead was using funds from later investors to pay returns to earlier ones. In February 1992 Hsu plead no contest
to one count of grand theft
and agreed to serve up to three years in prison and pay a $10,000 fine. Hsu subsequently failed to appear at the sentencing hearing and a warrant was issued for his arrest.
Hsu fled to Hong Kong and lived there from 1992 to 1996 while working in the garment industry. He started at least two companies there, both with vague charters. Aided by what others described as a magnetic personality, he prospered for a while, living in a luxury building. However the companies were dissolved in 1997 and 1998, and by 1998 Hong Kong courts had declared Hsu once again bankrupt. He would not emerge from this Hong Kong bankruptcy until 2006.
areas. He became an investor in Silicon Valley
, invested in real estate in the San Francisco Bay Area
, and still had engagements in the garment industry. He later relocated to New York, where he seemed to become involved in the apparel business once again and lived in a luxury apartment in SoHo
while flying chartered jets
.
Starting in 2003, Hsu began contributing to, and collecting contributions for, the Democratic Party, although he did not join the party and was not registered to vote. He also donated to causes such as the Innocence Project
and Clinton Global Initiative. He also became a trustee of The New School
in New York, to whom he donated $100,000 and provided the money for a scholarship. Democratic Party figures claimed they did not know much about him or his businesses, but appreciated his support; and he became known to them as someone who could quickly raise large amounts of money, and as someone who networked tirelessly and always found ways to be included in high-profile events. By 2007, Hsu's status within Hillary Rodham Clinton
's 2008 presidential campaign had risen to the level where he was a "HillRaiser", someone who had "bundled" more than $100,000 for her campaign, and to where he co-hosted a $1 million fundraiser at wealthy Democratic Party supporter Ron Burkle's Beverly Hills estate, and in September, he was scheduled to co-host a major gala fundraising event featuring music legend Quincy Jones
.
revealed potential campaign finance irregularities involving Hsu, in his role as a "bundler", and his long-time associates, the Paw family of Daly City, California
. Specifically, members of the Paw family made donations of over $200,000 to Democratic candidates since 2005. These donations closely coordinated with those of Hsu in terms of timing, amounts and donees. In addition, the donations appeared to be much larger than would be expected given the Paw's modest income. According to records obtained for the investigation, the Paws own a gift shop and live in a 1280 square feet (118.9 m²) house that they recently refinanced for $270,000. William Paw, the 64-year-old head of the household, is a mail carrier with the U.S. Postal Service and earns approximately $49,000 a year. Other records linked Hsu to the Paws, including a campaign finance filing in which Hsu lists the Paw's home as his residence.
In September 2007, it was reported that the U.S. Justice Department has launched a formal investigation into possible campaign finance violations by Hsu and his associates. One focal point for the investigation concerns whether any of the donations by the Paws were reimbursed by Hsu, which would constitute a felony. Through his attorney, Hsu has denied any wrong-doing.
.
The California Attorney General's office had negotiated $1 million bail to be eventually applied to restitution, but the presiding judge set the amount at the $2 million.
Hsu was jailed briefly that day until his attorney returned with the increased bail. The following week, Hsu failed to appear for a bail reduction hearing on September 5 at which he was expected to turn in his passport. A "no bail" warrant was immediately issued for his arrest and Hsu forfeited the $2 million. On September 6, he was arrested by the FBI in Grand Junction, Colorado
, after falling ill on the California Zephyr
train headed for Chicago
. It was subsequently revealed that Hsu mailed suicide notes to several acquaintances and organizations before boarding the train, and was discovered with prescription pills loose in his compartment.
It was unclear how Hsu could have remained at large for 15 years and engage in prominent political activity without being detected. It was also unclear how a convicted felon, having already fled prosecution once, was allowed out on bail without first having to surrender his passport. Prior to Hsu's second attempt to flee, James Brosnahan, Hsu's attorney in California, defended Hsu stating that Hsu's prominence showed that he did not behave like a fugitive and that Hsu was moving towards a resolution of the matter, including a plan of restitution for victims of Hsu's actions.
On September 13, 2007, a Colorado judge denied a prosecutor's request for bail to be set at $50 million and instead set bail for Hsu at $5 million. The prosecutor reported Hsu to have a checkbook listing a balance of $6 million at the time of his capture in Grand Junction. The presiding judge remarked, "$2 million wasn't enough to keep Mr. Hsu from running. We'll see if $5 million will do it."
On January 4, 2008, Hsu was sentenced to jail for 3 years by California Superior Court Judge Stephen Hall for the original fraud conviction, now 16 years old. Judge Hall rejected Hsu's argument that his right to a speedy trial was denied by authorities who could have easily found and arrested him.
Upon learning about Hsu's proposed investment scheme, Irvine, California
, businessman Jack Cassidy became concerned and warned the California Democratic Party that Hsu's activities may not have been legitimate. Apparently, Hsu was soliciting investors for a "bridge loan" operation that returned approximately 6% every 3 months. However, investors were told few details about the operation and investigators are trying to determine whether the "bridge loans" involved bona fide business activity or were simply a front for a new Ponzi scheme.
Hsu may in fact have been running multiple cons
on a massive scale. As an example, a New York investment fund run by Woodstock Festival
founder Joel Rosenman
invested $40 million dollars spread over 37 separate deals with a Hsu company. Hsu reportedly told Rosenman the money would be used to manufacture apparel for well known luxury brands, yielding a 40% profit on each deal. When Rosenman's fund recently attempted to cash checks from Hsu's company in September 2007, there were insufficient funds. Federal charges of fraud have since been brought against Hsu.
. He could face a sentence of up to 45 years in prison.
The Complaint cites to statements from three "victims" and two "witnesses" as well as a confession by Hsu to an FBI agent.
On November 27, 2007, a federal grand jury
sitting in Manhattan
indicted Hsu on charges of violating federal campaign finance laws and defrauding investors out of at least $20 million. According to the indictment
, Hsu made "false promises" to private investors in his companies that they would be paid "guaranteed high rates of return on investments in the short term."
On May 7, 2009, Hsu pleaded guilty in federal court in New York to ten counts of mail and wire fraud in connection with the Ponzi scheme. Hsu stated that "I knew what I was doing was illegal" and faced up to 20 years in prison on each count. Hsu was still contesting the charges of campaign finance fraud, however.
Hsu was sentenced to 24 years in prison and is currently incarcerated in Federal Correctional Institution, Milan
. His date of release is August 12, 2030.
It is not clear whether the recipients of Hsu's campaign contributions will be added as defendants to any of the lawsuits as the various funds seek solvent entities from which to recover their initial investments.
After Hsu fled the California justice system again in 2007, his contributions were renounced by an increasing number of elected officials.
The general pattern of reaction has been typified by Bob Kerrey
, president of the New School and former Senator from Nebraska, who originally stated that Hsu had been "a terrific member" of the New School board. After Hsu resigned as a board member, Kerrey said the university did not do background checks of prospective trustees and that he hoped that Hsu "didn't break the law." After Hsu became a two-time fugitive, Kerrey remarked, "I thought that I knew him, but obviously I didn’t."
One of Hsu's most tenacious supporters was Pennsylvania
Governor Ed Rendell
, who called Hsu "one of the best 10 people I've met." Later, Rendell said, "Though Norman is my friend and remains so, his failure to appear casts a new light on his assertions regarding the original [fraud] case. As a result I will follow other elected officials and donate the money he contributed to me to charity."
In comparison, 2008 Presidential candidate Hillary Clinton began to disengage from Hsu at an earlier phase of the scandal when Hsu's long time fugitive status was first revealed. After indications of additional misconduct by Hsu, the Clinton campaign then decided to refund a total of $850,000 in bundled contributions Clinton was the first major candidate to give up bundled contributions from associates of Norman Hsu. However, it is also true that her campaign ignored earlier private warnings about Hsu and that Clinton was the largest recipient of bundled donations from Hsu.
In 2006, former President Clinton
referred to Hsu as "our friend Norman". After the scandal went public, Bill Clinton remarked in colloquial language, "You could have knocked me over with a straw". Democrats are continuing to try to reconcile positive personal impressions of Hsu with his criminal behavior. Mark Gorenberg, who sat on President Barack Obama
campaign's national finance committee, remarked, "Despite it all, I still love the guy, despite everything you read, every experience I ever had with him was nothing but delightful, and I just scratch my head."
Hsu never appeared to want or expect anything in return for his many contributions, other than to appear in high-profile circles; indeed a West Coast Democratic fundraiser said, "He seemed so desperate to be included in every big-ticket event in California … It was a little sad." One Clinton campaign aide attempted to penetrate more deeply into Hsu's motives, remarking that Hsu's business activity "was reinforced by his efforts in politics and philanthropy; he seemed like a generous guy, but only later did you realize what he was up to."
Pyramid scheme
A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public...
promoter who associated himself with the apparel industry. His business activities were intertwined with his role as a major fundraiser
Fundraiser
A fundraiser is an event or campaign whose primary purpose is to raise money for a cause. See also: fundraising. A fundraiser can also be an individual or company whose primary job is to raise money for a specific charity or non-profit organization...
for the Democratic Party
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
, and he gained notoriety after suspicious patterns of bundled campaign contributions were reported in 2007. Subsequently he was discovered to have been a long-time fugitive in connection with a 1992 fraud conviction. After turning himself in to California authorities in 2007 he fled the state again and was quickly recaptured.
The U.S. Justice Department investigated whether Hsu illegally reimbursed political donations by associates and formally charged him with fraud. On November 27, 2007, a federal grand jury indicted Hsu on charges of violating federal campaign finance
Campaign finance
Campaign finance refers to all funds that are raised and spent in order to promote candidates, parties or policies in some sort of electoral contest. In modern democracies such funds are not necessarily devoted to election campaigns. Issue campaigns in referendums, party activities and party...
laws and defrauding investors "out of at least $20 million."
Early life
Hsu was born and raised in Hong KongHong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, though his family was originally from Shanghai
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
. At age 18, he emigrated to the United States and obtained a B.S.
Bachelor of Science
A Bachelor of Science is an undergraduate academic degree awarded for completed courses that generally last three to five years .-Australia:In Australia, the BSc is a 3 year degree, offered from 1st year on...
degree in computer science
Computer science
Computer science or computing science is the study of the theoretical foundations of information and computation and of practical techniques for their implementation and application in computer systems...
from the University of California, Berkeley
University of California, Berkeley
The University of California, Berkeley , is a teaching and research university established in 1868 and located in Berkeley, California, USA...
in 1973. Hsu married in 1974 and received a California real estate license
Real estate license
Real estate licenses are those authorizations issued by a state administration that gives agents and/or brokers the legal ability to represent a home seller or buyer in the process of buying or selling real estate in the United States....
in 1976. In 1981, he completed an M.B.A. from the Wharton School
Wharton School of the University of Pennsylvania
The Wharton School is the business school of the University of Pennsylvania, an Ivy League university in Philadelphia, Pennsylvania. Wharton was the world’s first collegiate business school and the first business school in the United States...
. He and other Hong Kong partners formed the sportswear company Laveno in 1982, which went bankrupt in 1984. He then created other sportswear companies, including Wear This, Base, and Foreign Exchange. He engaged in other businesses as well, including clothing stores and restaurants. During this time, he became a naturalized American citizen
United States nationality law
Article I, section 8, clause 4 of the United States Constitution expressly gives the United States Congress the power to establish a uniform rule of naturalization. The Immigration and Naturalization Act sets forth the legal requirements for the acquisition of, and divestiture from, citizenship of...
.
Ponzi scheme conviction and flight
Hsu was able to gain the trust of investors by his dress, by his warm and personable manner, by his educational credentials, by being quoted in trade magazines, and by the long list of business under his name, but had a record of changing addresses and leaving disappointed investors behind. Starting in 1989, Hsu raised $1 million from investors to launch a latex glove business. Some of these partners invested their life savings or mortgaged their homes, and some sued Hsu when it appeared their money was lost. In 1990, Hsu, then living in Foster City, CaliforniaFoster City, California
Foster City is an affluent planned city located in San Mateo County, California, 94404. As of the 2010 census, the city had a total population of 30,567. Forbes ranked Foster City #10 on their 2009 list of America's Top 25 Towns to Live Well. Money has also recognized Foster City multiple times as...
, declared a bankruptcy, stating that he was practically destitute, with no job, no income, and few possessions other than an SUV and a ring. That same year, he was also divorced as well as allegedly kidnapped by San Francisco Triad society gang leader Raymond Kwok Chow
Raymond Kwok Chow
Raymond "Shrimp Boy" Chow, born Kwok Cheung in 1960 in Hong Kong, is a Chinese American former triad member who once was the second-highest ranking member of the American branch of the Hong Kong-based triad Wo Hop To...
. In 1991, California authorities brought fraud charges against him, describing his operation as a Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
. Specifically, authorities claimed Hsu had not engaged in any legitimate business activity, but instead was using funds from later investors to pay returns to earlier ones. In February 1992 Hsu plead no contest
Nolo contendere
is a legal term that comes from the Latin for "I do not wish to contend." It is also referred to as a plea of no contest.In criminal trials, and in some common law jurisdictions, it is a plea where the defendant neither admits nor disputes a charge, serving as an alternative to a pleading of...
to one count of grand theft
Grand theft
Grand theft or grand larceny is a category used to rank the severity of crime associated with theft.Generally, in the United States it is defined as intentional taking property of others in an amount exceeding the state statutory amount....
and agreed to serve up to three years in prison and pay a $10,000 fine. Hsu subsequently failed to appear at the sentencing hearing and a warrant was issued for his arrest.
Hsu fled to Hong Kong and lived there from 1992 to 1996 while working in the garment industry. He started at least two companies there, both with vague charters. Aided by what others described as a magnetic personality, he prospered for a while, living in a luxury building. However the companies were dissolved in 1997 and 1998, and by 1998 Hong Kong courts had declared Hsu once again bankrupt. He would not emerge from this Hong Kong bankruptcy until 2006.
Entry into politics
Hsu then returned to the United States in the late 1990s, despite his fugitive status, and established several addresses in the San Francisco and Los AngelesLos Ángeles
Los Ángeles is the capital of the province of Biobío, in the commune of the same name, in Region VIII , in the center-south of Chile. It is located between the Laja and Biobío rivers. The population is 123,445 inhabitants...
areas. He became an investor in Silicon Valley
Silicon Valley
Silicon Valley is a term which refers to the southern part of the San Francisco Bay Area in Northern California in the United States. The region is home to many of the world's largest technology corporations...
, invested in real estate in the San Francisco Bay Area
San Francisco Bay Area
The San Francisco Bay Area, commonly known as the Bay Area, is a populated region that surrounds the San Francisco and San Pablo estuaries in Northern California. The region encompasses metropolitan areas of San Francisco, Oakland, and San Jose, along with smaller urban and rural areas...
, and still had engagements in the garment industry. He later relocated to New York, where he seemed to become involved in the apparel business once again and lived in a luxury apartment in SoHo
SoHo
SoHo is a neighborhood in Lower Manhattan, New York City, notable for being the location of many artists' lofts and art galleries, and also, more recently, for the wide variety of stores and shops ranging from trendy boutiques to outlets of upscale national and international chain stores...
while flying chartered jets
Air charter
Air charter is the business of renting an entire aircraft as opposed to individual aircraft seats...
.
Starting in 2003, Hsu began contributing to, and collecting contributions for, the Democratic Party, although he did not join the party and was not registered to vote. He also donated to causes such as the Innocence Project
Innocence Project
An Innocence Project is one of a number of non-profit legal organizations in the United States, Canada, the United Kingdom, Australia and New Zealand dedicated to proving the innocence of wrongly convicted people through the use of DNA testing, and to reforming the criminal justice systems to...
and Clinton Global Initiative. He also became a trustee of The New School
The New School
The New School is a university in New York City, located mostly in Greenwich Village. From its founding in 1919 by progressive New York academics, and for most of its history, the university was known as the New School for Social Research. Between 1997 and 2005 it was known as New School University...
in New York, to whom he donated $100,000 and provided the money for a scholarship. Democratic Party figures claimed they did not know much about him or his businesses, but appreciated his support; and he became known to them as someone who could quickly raise large amounts of money, and as someone who networked tirelessly and always found ways to be included in high-profile events. By 2007, Hsu's status within Hillary Rodham Clinton
Hillary Rodham Clinton
Hillary Diane Rodham Clinton is the 67th United States Secretary of State, serving in the administration of President Barack Obama. She was a United States Senator for New York from 2001 to 2009. As the wife of the 42nd President of the United States, Bill Clinton, she was the First Lady of the...
's 2008 presidential campaign had risen to the level where he was a "HillRaiser", someone who had "bundled" more than $100,000 for her campaign, and to where he co-hosted a $1 million fundraiser at wealthy Democratic Party supporter Ron Burkle's Beverly Hills estate, and in September, he was scheduled to co-host a major gala fundraising event featuring music legend Quincy Jones
Quincy Jones
Quincy Delightt Jones, Jr. is an American record producer and musician. A conductor, musical arranger, film composer, television producer, and trumpeter. His career spans five decades in the entertainment industry and a record 79 Grammy Award nominations, 27 Grammys, including a Grammy Legend...
.
Relationship with Paw family
In August 2007, an investigation by The Wall Street JournalThe Wall Street Journal
The Wall Street Journal is an American English-language international daily newspaper. It is published in New York City by Dow Jones & Company, a division of News Corporation, along with the Asian and European editions of the Journal....
revealed potential campaign finance irregularities involving Hsu, in his role as a "bundler", and his long-time associates, the Paw family of Daly City, California
Daly City, California
Daly City is the largest city in San Mateo County, California, United States, with a 2010 population of 101,123. Located immediately south of San Francisco, it is named in honor of businessman and landowner John Daly.-History:...
. Specifically, members of the Paw family made donations of over $200,000 to Democratic candidates since 2005. These donations closely coordinated with those of Hsu in terms of timing, amounts and donees. In addition, the donations appeared to be much larger than would be expected given the Paw's modest income. According to records obtained for the investigation, the Paws own a gift shop and live in a 1280 square feet (118.9 m²) house that they recently refinanced for $270,000. William Paw, the 64-year-old head of the household, is a mail carrier with the U.S. Postal Service and earns approximately $49,000 a year. Other records linked Hsu to the Paws, including a campaign finance filing in which Hsu lists the Paw's home as his residence.
In September 2007, it was reported that the U.S. Justice Department has launched a formal investigation into possible campaign finance violations by Hsu and his associates. One focal point for the investigation concerns whether any of the donations by the Paws were reimbursed by Hsu, which would constitute a felony. Through his attorney, Hsu has denied any wrong-doing.
Status as fugitive
One day after the release of The Wall Street Journals investigation, it was reported that the warrant issued after Hsu's failure to appear for sentencing for his 1992 fraud conviction was still valid. On August 31, 2007, Hsu surrendered to authorities at the district court house in Redwood City, CaliforniaRedwood City, California
Redwood City is a California charter city located on the San Francisco Peninsula in Northern California, approximately 27 miles south of San Francisco, and 24 miles north of San Jose. Redwood City's history spans from its earliest inhabitation by the Ohlone people, to its tradition as a port for...
.
The California Attorney General's office had negotiated $1 million bail to be eventually applied to restitution, but the presiding judge set the amount at the $2 million.
Hsu was jailed briefly that day until his attorney returned with the increased bail. The following week, Hsu failed to appear for a bail reduction hearing on September 5 at which he was expected to turn in his passport. A "no bail" warrant was immediately issued for his arrest and Hsu forfeited the $2 million. On September 6, he was arrested by the FBI in Grand Junction, Colorado
Grand Junction, Colorado
The City of Grand Junction is the largest city in western Colorado. It is a city with a council–manager government form that is the county seat and the most populous city of Mesa County, Colorado, United States. Grand Junction is situated west-southwest of the Colorado State Capitol in Denver. As...
, after falling ill on the California Zephyr
California Zephyr
The California Zephyr is a long passenger train route operated by Amtrak in the midwestern and western United States.It runs from Chicago, Illinois, in the east to Emeryville, California, in the west, passing through the states of Illinois, Iowa, Nebraska, Colorado, Utah, Nevada, and California...
train headed for Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
. It was subsequently revealed that Hsu mailed suicide notes to several acquaintances and organizations before boarding the train, and was discovered with prescription pills loose in his compartment.
It was unclear how Hsu could have remained at large for 15 years and engage in prominent political activity without being detected. It was also unclear how a convicted felon, having already fled prosecution once, was allowed out on bail without first having to surrender his passport. Prior to Hsu's second attempt to flee, James Brosnahan, Hsu's attorney in California, defended Hsu stating that Hsu's prominence showed that he did not behave like a fugitive and that Hsu was moving towards a resolution of the matter, including a plan of restitution for victims of Hsu's actions.
On September 13, 2007, a Colorado judge denied a prosecutor's request for bail to be set at $50 million and instead set bail for Hsu at $5 million. The prosecutor reported Hsu to have a checkbook listing a balance of $6 million at the time of his capture in Grand Junction. The presiding judge remarked, "$2 million wasn't enough to keep Mr. Hsu from running. We'll see if $5 million will do it."
On January 4, 2008, Hsu was sentenced to jail for 3 years by California Superior Court Judge Stephen Hall for the original fraud conviction, now 16 years old. Judge Hall rejected Hsu's argument that his right to a speedy trial was denied by authorities who could have easily found and arrested him.
Source of income
The source of Hsu's income once he returned to the United States is unclear. While he claims to be involved in several businesses in the fashion industry, visits to those addresses "found no trace of Mr. Hsu." At several business addresses provided on Hsu's campaign donation forms, none of the listed businesses could be located. A New Jersey fashion designer that Hsu had listed as a co-investor, said he had never heard of Hsu. Lawrence Barcella, Hsu's Washington, D.C. attorney, claims that Hsu's post-1996-return Silicon Valley investments account for some of his ability to make his political contributions. However, detailed financial records for Components Ltd, a Hsu-controlled entity with no obvious business purpose, reveal payments of $100,000 to nine political donors whose contributions were later bundled by Hsu.Upon learning about Hsu's proposed investment scheme, Irvine, California
Irvine, California
Irvine is a suburban incorporated city in Orange County, California, United States. It is a planned city, mainly developed by the Irvine Company since the 1960s. Formally incorporated on December 28, 1971, the city has a population of 212,375 as of the 2010 census. However, the California...
, businessman Jack Cassidy became concerned and warned the California Democratic Party that Hsu's activities may not have been legitimate. Apparently, Hsu was soliciting investors for a "bridge loan" operation that returned approximately 6% every 3 months. However, investors were told few details about the operation and investigators are trying to determine whether the "bridge loans" involved bona fide business activity or were simply a front for a new Ponzi scheme.
Hsu may in fact have been running multiple cons
Confidence trick
A confidence trick is an attempt to defraud a person or group by gaining their confidence. A confidence artist is an individual working alone or in concert with others who exploits characteristics of the human psyche such as dishonesty and honesty, vanity, compassion, credulity, irresponsibility,...
on a massive scale. As an example, a New York investment fund run by Woodstock Festival
Woodstock Festival
Woodstock Music & Art Fair was a music festival, billed as "An Aquarian Exposition: 3 Days of Peace & Music". It was held at Max Yasgur's 600-acre dairy farm in the Catskills near the hamlet of White Lake in the town of Bethel, New York, from August 15 to August 18, 1969...
founder Joel Rosenman
Joel Rosenman
Joel Rosenman , conceived and co-created the Woodstock Festival in 1969. Rosenman thought of the idea for the three-day concert when he and business partner John Roberts evaluated a recording studio proposal brought forward by Michael Lang and Artie Kornfeld...
invested $40 million dollars spread over 37 separate deals with a Hsu company. Hsu reportedly told Rosenman the money would be used to manufacture apparel for well known luxury brands, yielding a 40% profit on each deal. When Rosenman's fund recently attempted to cash checks from Hsu's company in September 2007, there were insufficient funds. Federal charges of fraud have since been brought against Hsu.
Legal actions against Hsu
Since his re-incarceration, a variety of legal actions have been brought against Hsu.Federal charges
On September 19, 2007, a federal complaint was issued against Hsu by the U.S. Attorney in Manhattan. The complaint alleges that Hsu's investment offerings were a Ponzi scheme that paid early investors with money that was contributed by later investors, that Hsu pressured investors to contribute to candidates for office, providing them with a list of candidates to choose from and that Hsu reimbursed some contributors to candidates for office in the amount of their contributions. Based on these actions, Hsu is charged with mail fraud, wire fraud and violating the Federal Election Campaign ActFederal Election Campaign Act
The Federal Election Campaign Act of 1971 is a United States federal law which increased disclosure of contributions for federal campaigns. It was amended in 1974 to place legal limits on the campaign contributions...
. He could face a sentence of up to 45 years in prison.
The Complaint cites to statements from three "victims" and two "witnesses" as well as a confession by Hsu to an FBI agent.
On November 27, 2007, a federal grand jury
Grand jury
A grand jury is a type of jury that determines whether a criminal indictment will issue. Currently, only the United States retains grand juries, although some other common law jurisdictions formerly employed them, and most other jurisdictions employ some other type of preliminary hearing...
sitting in Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
indicted Hsu on charges of violating federal campaign finance laws and defrauding investors out of at least $20 million. According to the indictment
Indictment
An indictment , in the common-law legal system, is a formal accusation that a person has committed a crime. In jurisdictions that maintain the concept of felonies, the serious criminal offence is a felony; jurisdictions that lack the concept of felonies often use that of an indictable offence—an...
, Hsu made "false promises" to private investors in his companies that they would be paid "guaranteed high rates of return on investments in the short term."
On May 7, 2009, Hsu pleaded guilty in federal court in New York to ten counts of mail and wire fraud in connection with the Ponzi scheme. Hsu stated that "I knew what I was doing was illegal" and faced up to 20 years in prison on each count. Hsu was still contesting the charges of campaign finance fraud, however.
Hsu was sentenced to 24 years in prison and is currently incarcerated in Federal Correctional Institution, Milan
Federal Correctional Institution, Milan
The Federal Correctional Institution, Milan is a U.S. federal prison in York Charter Township, Michigan, near Milan.This prison is a low-security facility for male inmates. Its adjacent Federal Detention Center houses pretrial and holdover inmates...
. His date of release is August 12, 2030.
Source Financing
"Source Financing Investors LLC," an investment fund started by Joel Rosenman (a Woodstock founder), claims that Hsu owes it $40 million. Source Financing sued Hsu On September 20, 2007. It has asked that all candidates who received campaign contributions from Hsu not donate them to charity as the money may have been improperly channeled from investors.Briar Wood Investors
On September 21, 2007 a group of Southern California investors ("Briar Wood Investors") sued Hsu, claiming that he defrauded them, and that he pressured them into making contributions to the campaigns of elected officials.It is not clear whether the recipients of Hsu's campaign contributions will be added as defendants to any of the lawsuits as the various funds seek solvent entities from which to recover their initial investments.
Democratic party reaction
After initial reports of suspicious contributions, prominent Democrats defended Hsu's reputation. Supporters began to distance themselves after his long-time fugitive status was revealed.After Hsu fled the California justice system again in 2007, his contributions were renounced by an increasing number of elected officials.
The general pattern of reaction has been typified by Bob Kerrey
Bob Kerrey
Joseph Robert "Bob" Kerrey was the 35th Governor of Nebraska from 1983 to 1987 and a U.S. Senator from Nebraska . Having served in the Vietnam War, earning the Medal of Honor for his actions, he moved into politics. He was an unsuccessful candidate for the Democratic presidential nomination in 1992...
, president of the New School and former Senator from Nebraska, who originally stated that Hsu had been "a terrific member" of the New School board. After Hsu resigned as a board member, Kerrey said the university did not do background checks of prospective trustees and that he hoped that Hsu "didn't break the law." After Hsu became a two-time fugitive, Kerrey remarked, "I thought that I knew him, but obviously I didn’t."
One of Hsu's most tenacious supporters was Pennsylvania
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...
Governor Ed Rendell
Ed Rendell
Edward Gene "Ed" Rendell is an American politician who served as the 45th Governor of Pennsylvania. Rendell, a member of the Democratic Party, was elected Governor of Pennsylvania in 2002, and his term of office began January 21, 2003...
, who called Hsu "one of the best 10 people I've met." Later, Rendell said, "Though Norman is my friend and remains so, his failure to appear casts a new light on his assertions regarding the original [fraud] case. As a result I will follow other elected officials and donate the money he contributed to me to charity."
In comparison, 2008 Presidential candidate Hillary Clinton began to disengage from Hsu at an earlier phase of the scandal when Hsu's long time fugitive status was first revealed. After indications of additional misconduct by Hsu, the Clinton campaign then decided to refund a total of $850,000 in bundled contributions Clinton was the first major candidate to give up bundled contributions from associates of Norman Hsu. However, it is also true that her campaign ignored earlier private warnings about Hsu and that Clinton was the largest recipient of bundled donations from Hsu.
In 2006, former President Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
referred to Hsu as "our friend Norman". After the scandal went public, Bill Clinton remarked in colloquial language, "You could have knocked me over with a straw". Democrats are continuing to try to reconcile positive personal impressions of Hsu with his criminal behavior. Mark Gorenberg, who sat on President Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
campaign's national finance committee, remarked, "Despite it all, I still love the guy, despite everything you read, every experience I ever had with him was nothing but delightful, and I just scratch my head."
Hsu never appeared to want or expect anything in return for his many contributions, other than to appear in high-profile circles; indeed a West Coast Democratic fundraiser said, "He seemed so desperate to be included in every big-ticket event in California … It was a little sad." One Clinton campaign aide attempted to penetrate more deeply into Hsu's motives, remarking that Hsu's business activity "was reinforced by his efforts in politics and philanthropy; he seemed like a generous guy, but only later did you realize what he was up to."