Feds: Hsu Linked Politics to Investment Performance

Chances are that Charles Ponzi, the Boston huckster for whom the Ponzi scheme is named, would have enjoyed a sit-down with Norman Hsu, the erstwhile Democratic fundraiser.

Hsu, called "our friend Norman" by former President Clinton in 2006, had been a fugitive from a 1992 fraud conviction, hiding in plain sight while being photographed earlier this year with Hillary Clinton.

Federal prosecutors in Manhattan unsealed a grand jury indictment against Hsu yesterday, charging him with a massive scheme to defraud investors that began in 2000 and continued through August.

The U.S. Attorney in Manhattan filed similar charges against Hsu in September.

The latest set of charges, though, gives a bit more insight into Hsu's modus operandi. According to the complaint, Hsu convinced victims to invest at least $60 million in his companies, Components Ltd. and Next Components Ltd. He then promptly "swindled his victims out of at least $20 million."

Like all classic Ponzi schemes, Hsu's lured its victims "by making false promises of guaranteed short-term, high-return investments,' the indictment charges. In the beginning, he repaid victims their invested principal and interest, as promised, from money he had solicited from other victims. All pretty much standard fare in a Ponzi scheme.

But Hsu's scheme had a particularly devilish twist, prosecutors say. The indictment charges that between 2004 and 2007, Hsu ratcheted up his political donations "in an effort to raise his public profile and thereby convince more victims to invest in his fraudulent scheme." If Bill and Hillary only knew!

In fact, according to the indictment, Hsu "pressured many of his victims to individually contribute thousands of dollars to various candidates" he supported. "Hsu made direct and implied threats to these victims, leading them to believe that their failure to make the required political contributions would hurt their relationships with Hsu."

Now, it seems hard to fathom that savvy investors would actually buy the idea that their investment returns depended on the size of their political contributions to certain candidates. But a suspension of disbelief is the beauty of the Ponzi scheme, until it unravels.

When you are guaranteeing high returns, it seems, the investors are not wont to ask too many questions. In 2005, 2006, and 2007, his victims made contributions totaling more than $25,000 each year, after which Hsu reimbursed them directly. What did they think was going on?

Like all Ponzi schemes, Hsu's collapsed eventually. The jig was up when the victims read newspaper accounts of Hsu's many legal problems in August and early September. He kept assuring investors, but said he needed time to "ensure that checks maturing during the next several days would be covered."

Cue a run on the bank: Victims attempted to cash millions of dollars in checks, which were not honored.

On Sept. 6, Hsu fell ill while on an Amtrak train in Colorado, after having failed to report at a bail hearing in California relating to the 1992 case.

He faces six counts of mail fraud, six counts of wire fraud and three counts of violating the Federal Election Campaign Act. He could face 20 year in prison on each of the mail and wire fraud counts.

by Karen Donovan

_{Photograph of Norman Hsu and Hillary Clinton by Steve Schwartz/Polaris}



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