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Hsu Charged with Campaign Finance Violations

September 20, 2007 at 6:05 PM EDT
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MARGARET WARNER: As federal prosecutors in New York charged businessman Norman Hsu with defrauding investors of $60 million, they also accused him of illegally making contributions to political candidates in other people’s names. The pyramid business financing scheme outlined in today’s charges is similar to one Hsu was convicted of running 15 years ago but fled before being sentenced.

Hsu was a prolific Democratic fundraiser in recent years, until his legal troubles came to light a few weeks ago. He’s raised more than $850,000 for Hillary Clinton’s presidential campaign, $19,500 for Barack Obama’s political action committee, $23,000 for Bill Richardson’s gubernatorial campaign, and also contributed to the Senate campaigns of Democrats Tom Harkin, Mary Landrieu, Frank Lautenberg, Mark Pryor, Jack Reed, and Jay Rockefeller, among others.

Clinton, Obama, and Richardson have said they’ll either return the donations or give them to charity.

For background on Hsu, we turn now to John Wildermuth, a reporter with the San Francisco Chronicle. And, John, welcome, thank you for joining us.

First of all, let’s look at the business-related charges today. What was the scheme under which he managed to fleece investors some $60 million?

JOHN WILDERMUTH, San Francisco Chronicle: Well, apparently it was essentially a Ponzi scheme, which means you tell people, “If you give me money now, I will return that money with interest after I make an investment and, maybe in a year, maybe less than that, six weeks, six months.” And after the first people get their money back, they say, “This is a great deal,” and they give more money and more money.

And the Ponzi scheme keeps working until there aren’t any more investors. And then whoever’s running the scheme, Mr. Hsu in this case and in the California case, then has a tendency to disappear with the money.

MARGARET WARNER: Now, this California case I gather was very, very similar. He was convicted 15 years ago, yet he’s only now going to appear for sentencing. How did that happen?

JOHN WILDERMUTH: Well, it’s similar, but it’s a lot smaller. It was about a million dollars. And what it was is it came down, Ponzi scheme, invested, took off with the money, but he was arrested, went through court, and pleaded no contest to grand theft charges. And they said, “OK, fine, show up at sentencing.” He never appeared. That was 15 years ago. Prosecutors thought he took off for Hong Kong, but a few years later he was back in New York City.

MARGARET WARNER: Now, when and how during this period, I guess, he was on the lam did he emerge as a major Democratic fundraiser?

JOHN WILDERMUTH: Actually, there’s no record of him being involved in politics at all until 2003 when he made a $2,000 donation to John Kerry. And what happens then, if you make a donation to a political candidate, your name is on the list. And more and more people keep coming and saying, “How’d you like to donate to us?” And Mr. Hsu very quickly got a reputation for someone who wouldn’t say no. Always had the money, was always willing to give it to a Democratic candidate.

MARGARET WARNER: So now explain, again, going back to today’s charges on the campaign financing side, what is it alleged he did in his role as a money raiser, obviously now giving a lot more than $2,000?

JOHN WILDERMUTH: Well, right now under the laws of the campaign finance, the most a person can give to a candidate is $2,300. Well, that’s not enough to run a campaign like the presidential campaigns, where they’re looking at having to raise $100 million or more. So what you do in that case is you find people that will donate their $2,300 but can also find a lot of other people that will donate $2,300.

Now, if you ask your friend to give Hillary Clinton $2,300, that’s fine. But if you ask your friend to give Hillary Clinton $2,300 and tell them that you will then give them the $2,300 to repay them, that’s a crime, and that’s what he’s being accused of.

MARGARET WARNER: And then the federal prosecutor also said further that he actually pressured some of his investors, as well, to actually give money.

JOHN WILDERMUTH: Well, that’s a hard one, really, because when you say “pressure,” you know, you go and you say, “Hey, you ought to donate. I think you ought to donate money to Hillary Clinton or Barack Obama or anyone.” And that person then has to decide whether they should give the money.

Now, the pressure comes strictly from the person himself who says, “Well, gee, if I don’t give the money that Mr. Hsu wanted me to donate, maybe Mr. Hsu won’t include me in his investment plans, and maybe I won’t make as much money.” This happens every single day in corporate America when, for example, the head of the insurance industry asks various insurance executives to donate money.

MARGARET WARNER: So now get back to the story of Mr. Hsu. How did suspicions about the way he went about raising money, back to the way he bundled this money and the straw donors, as you said, how did that come to light a few weeks ago?

JOHN WILDERMUTH: Well, it didn’t come to light until the Wall Street Journal wrote a story about Mr. Hsu, saying that Mr. Hsu has become, in a very few number of years, a major Democratic donor, and many of his friends have also become major Democratic donors, including some people that you wouldn’t expect would be the sort of person that can give hundreds of thousands of dollars in political campaigns.

MARGARET WARNER: And, in fact, the Journal went and found a family or a couple in California that really seemed not very plausible as a major donor?

JOHN WILDERMUTH: Certainly. The family is in Daly City, which is right next door to San Francisco, and there’s five members of the family. The father of the family is a mailman. They live in a home — which they own, it’s a nice home — but it’s a distinctly middle-class area. But in the course, since the last two years, 2005, they’ve given more than $200,000 to Democratic candidates across the nation. And that should raise some red flags, and it certainly did.

MARGARET WARNER: All right, John Wildermuth of the San Francisco Chronicle, thank you so much.

Campaigns rely on bundlers

MARGARET WARNER: And for a closer look now at how presidential campaigns rely on and vet these so-called bundlers, we turn to Ken Gross, former enforcement chief of the Federal Election Commission, now an election lawyer in private practice in Washington, D.C., and Craig Holman, legislative lobbyist for Public Citizen, a consumer advocacy group that monitors the bundling activity of the presidential campaigns on the web site WhiteHouseForSale.org.

And welcome to you both.

Craig Holman, explain how a man with this checkered legal background could even emerge as essentially one of Hillary Clinton's top 15 campaign fundraisers without raising some red flags. How does that happen?

CRAIG HOLMAN, Legislative Lobbyist, Public Citizen: Well, first of all, I want to point out, this is the first presidential election season in which we're going to see the major candidates spend $1 billion to get elected president. To spend that kind of money, they need to tap into any source of funds that they can find.

So even though there is some minimal scrutiny of a quick background check of some of the bundlers, none of the campaigns have exercised any sort of systematic, thorough check. So someone like Norman Hsu who suddenly reliably provides bundled contributions starting, you know, at smaller contributions and adding up to eventually about $850,000 to Clinton, $1 million all together to various states and federal candidates, and people are not going to be asking questions. They need that money.

MARGARET WARNER: Do you agree, Ken Gross, that essentially they say, "Boy, we've got a live one here," and they don't look too closely?

KEN GROSS, Former Enforcement Chief, Federal Elections Commission: No, I don't think that's entirely fair. Many campaigns, major campaigns at the federal and state level have rather thorough vetting systems, both in checking backgrounds of people, as well as people who volunteer on vetting committees to sort of give a human element to the process, particularly for large donors, those who are going to collect a lot of money.

Norman Hsu was sort of the perfect storm. His troubles back in California pre-dated the Internet, so you couldn't Google him, you couldn't find anything. He was on the board of a university in New York City. He had been giving for a few years to a number of candidates. And he had the kind of troubles in his background that were really difficult to pick out, and I think that was the problem with Norman Hsu. Campaigns do have vetting systems, but his case was the perfect storm.

Vetting systems not thorough

MARGARET WARNER: Is that the case that really the vetting systems, Craig Holman, are essentially to Google someone's name, and therefore he was hard to catch, based on a '92 conviction?

CRAIG HOLMAN: Well, so is almost everybody. I mean, essentially, the most thorough vetting system that campaigns have been using is something like a quick Google check, and it ends there.

I mean, you know, at this point, there's more than 2,000 bundlers providing campaign funds to the presidential candidates. They're not going to sit there and do a very thorough vetting of all those 2,000 bundlers. So it's a very quick, very sloppy check that is going to let a lot of Norman Hsus through the system.

And as a matter of fact, I do want to point out, I mean, granted Norman Hsu has hit the news with a furor, but he's not the only one. I mean, we are already starting to find other bundlers that have very questionable pasts that may, in fact, be laundering campaign funds for almost all the presidential candidates. We're going to see a lot more Norman Hsus coming out of the woodwork.

MARGARET WARNER: Do you agree, Kenneth Gross, a lot more Norman Hsus?

KEN GROSS: Well, there are going to be others, with hundreds of millions of dollars being contributed at $2,300 a clip, but I don't think it's fair to say that all these campaigns are doing is a quick Google search and going away. Sophisticated vetting systems have been implemented in a number of campaigns that have different levels of review. If it's an unknown, they'll go further. And if anything pops up, they'll go further.

In his case, nothing came up on the initial review. He was a known quantity, at least in the last few years, and set forth a bad set of circumstances.

But it's just too cavalier to say that these campaigns are doing a quick Google search and looking the other way for their major contributors, because I've been involved in setting up vetting systems, and they are more careful than that. But when a Hsu comes out of the woodwork, I'm sure there will be some further intensifying of the vetting system. Money has to be invested in that process; otherwise, it will create political problems, not so much legal problems for the campaigns, but political problems.

Bundlers valuable to both parties

MARGARET WARNER: And, Ken Gross, we need to explain to our viewers, you're a little out of sync in terms of our video and audio, but we can hear you just fine. So let me follow up with a question to broaden it out here. How dependent have these campaigns become in recent years on this practice of bundling, which, we should point out, is perfectly legal? Do you agree with Mr. Holman, in other words, that because now they would need to raise so much and the limits are where they are that these bundlers have become incredibly valuable, both among Democrats and Republicans?

KEN GROSS: Absolutely. As was said, a $2,300 contribution isn't going to buy you anything in today's markets. And we're talking literally hundreds of millions of dollars.

So the only way you're going to amass a campaign that raises ultimately $300 million or $400 million potentially for the nominated candidates is to assemble a certain group of people, national finance committee people, who are willing to raise $100,000, $200,000, $300,000.

Last cycle, George Bush had what he called his "Rangers" that committed $250,000 at a couple of thousand a clip and, of course, that's what's going on this time, as well. It is permissible, but it does raise the ante, and it is worrisome for a situation like this to come along, so these campaigns do need to invest in vetting systems and, if they're not good enough, they need to improve them.

MARGARET WARNER: Craig Holman, is it just up to the campaigns? In other words, does the FEC have no responsibility here or any other federal agency?

CRAIG HOLMAN: Under this new form of bundling that we've seen going on since 2000, that is absolutely the case. I want to emphasize how that reflects that there is very little vetting going on. All this bundling activity is done behind closed doors. There is no disclosure of who the bundlers are, how much money they're bringing in, what business they're associated with, what occupation they are. There's no disclosure to the public.

Getting credit for contributions

MARGARET WARNER: So let me interrupt you. Explain that. When these campaign spending reports or, excuse me, finance reports come out, and you see everybody's name and occupation, what you're saying is, if that person actually gave his check to Mr. X, that's not told to the public, in other words, if it was channeled or bundled by somebody else?

CRAIG HOLMAN: That's right. The new form of bundling that we're seeing going on now is someone like Norman Hsu will go to the campaign and say, "I want to bring in a half-a-million dollars or a million dollars for your campaign, but I want to make sure you know I get credit for it."

So the campaign will assign that bundler a number, say 432, and the bundler will go out, solicit contributions from his or her business associates or colleagues, have them mail in the checks themselves, but ask them to write the number 432 on the memo of the check. That way the campaign knows that the bundler brought in half-a-million dollars, but the public hasn't got a clue.

MARGARET WARNER: Ken Gross, briefly from you a response to that. Do you think that should change at least?

KEN GROSS: There's really nothing new about bundling, and even at this sophisticated level. It went on in a major way in the last couple of elections. One thing that we have seen is really the demise and the death of the public financing process.

After Watergate, as part of those reforms, public financing was passed, and the general elections of prior campaign, major candidates have been publicly funded without private financing, and now we're seeing that going by the boards. So part of the problem is, is that there is such a demand for money on the process, but it is not anything particularly new, the idea that you're committing and getting credit for contributions. That has been the process for years and will be the process going forward.

MARGARET WARNER: All right, Kenneth Gross and Craig Holman, thank you both.

CRAIG HOLMAN: Thank you.