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Hsu Charged with Campaign Finance Violations

Democratic fund-raiser Norman Hsu was indicted Thursday on charges of campaign finance violation and business fraud. Experts consider the role of "bundlers" like Hsu and how campaigns vet their contributions.

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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.