Norman Hsu was politician’s dream who became a nightmare. He knew people, hosted fundraisers, solicited donations. And he was an unabashed fan of Hillary Rodham Clinton.
Now in disgrace, his role as one of Clinton’s top money bundlers will dog him and her presidential campaign while law enforcement authorities investigate his business and political dealings.
Eager to sever her links to Hsu, the Clinton campaign this week returned $850,000 in contributions linked to his fundraising activities. But Hsu’s troubles aren’t over and the spotlight on his political connections won’t recede easily.
Hsu is the latest poster boy for rogue fundraising, a man whose political shoulder rubbing reinvented him and then did him in. For Clinton, Hsu threatens to be an unwelcome reminder of the fundraising scandals that pursued her husband and the Democratic Party in the 1990s.
Joseph Birkenstock, a former chief counsel for the Democratic National Committee, said it would be unfair to link her presidential campaign to 12-year-old instances of money laundering and Lincoln Bedroom sleepovers for major Democratic donors.
“But given her last name,” he said, “the bar is somewhat higher for her politically than it would be for others.”
Though Clinton was by far the biggest beneficiary of his fundraising, Hsu touched many with his largesse. Even Manhattan District Attorney Robert Morgenthau, who is leading one investigation of Hsu, received $2,000 from Hsu during his last re-election campaign. His spokeswoman says the district attorney has put the money into an escrow account pending the outcome of the investigation.
Hsu sat on the board of trustees of The New School, whose president is former Sen. Bob Kerrey, D-Neb. He was co-chairman of a gala New York benefit last October in honor of the late Robert F. Kennedy. Bill Clinton, there to receive an award, thanked the evening’s benefactors, “especially our friend Norman Hsu.”
Now, the Manhattan prosecutor is investigating whether Hsu used a financing scheme to steal $40 million from Source Financing, an investment fund founded by one of the organizers of the 1969 Woodstock rock festival.
Law enforcement authorities say the FBI also is investigating whether Hsu used straw donors to contribute to political candidates, reimbursing them for their donations in violation of federal law.
Meanwhile, Hsu is in a Colorado county jail, held for skipping a court appearance in California on an outstanding fugitive warrant. Hsu pleaded no contest in 1992 to a felony charge stemming from what prosecutors said was a $1 million Ponzi scheme. He was expected to serve up to three years in prison, but fled California before he was sentenced and seemingly disappeared.
The Los Angeles Times revealed his fugitive status last month after The Wall Street Journal raised questions about his fundraising practices.
Hsu turned himself in on Aug. 31 in Redwood City, Calif., and posted the $2 million bail with a cashier’s check. But he failed to show up in court for a Sept. 5 appearance. The following day he was discovered ailing in an Amtrak train, while worried acquaintances in New York fretted over a suicide note that bore his name.
The note arrived last week in the office of the Innocence Project, a legal group that helps prove prisoners’ innocence through DNA testing. Innocence Project officials were so alarmed by the note — sent by FedEx — that they promptly notified the authorities.
With its dramatic twists and multiple prongs, Hsu’s case has provided a steady diet of news stories over the past three weeks.
That the Clinton campaign — and other Democratic candidates — had failed to detect his status as a fugitive has prompted Clinton and her rival John Edwards to announce that they will now conduct criminal background checks on their fundraisers.
Federal law permits donors to give only $2,300 to candidates for each election. But in a presidential campaign where candidates are raising millions and forgoing public financing, fundraisers who can solicit and bundle money for candidates are highly prized.
“It is surprising to me, given the fact that cumulatively the presidential campaigns have raised in excess of $250 million dollars, to have only one individual rise to the top as a problem,” said Paul W. Houghtaling, a political finance expert who was hired by the DNC to set up a compliance system after the 1996 scandals.
Jenny Backus, a Democratic consultant not affiliated with any campaign, predicted more campaigns would encounter their own fundraising troubles.
“This campaign cycle is so awash in money and people are raising money at such a rapid pace, I don’t think that there is just one Norman Hsu out there and I don’t think this is going to be an issue that hits just one party,” she said.
In returning the money to donors, the Clinton campaign said donors could contribute again if they demonstrate that the money is coming from their own funds. This week, Clinton told reporters, “I believe that the vast majority of those 200-plus donors are perfectly capable of making up their own minds about what they will or won’t do going forward.”
How much of the money Clinton can recoup remains to be seen.
“I’d be surprised if they get much of that money back,” said Birkenstock, the former DNC counsel. “The feeling is, if it was not good enough before, why is it good enough now?”
Houghtaling predicted only 10 percent of the donors would contribute again. He said the Clinton camp could have simply sent letters to donors asking them to verify that the money came from their own funds, returning money that could not be justified.
“But they created more of a controversy by summarily returning $850,000 without asking any questions,” he said.
John Catsimatidis, a longtime Clinton fundraiser, said many of Hsu’s donors are probably legitimate contributors and said he would not have returned the money.
“I would have probably put it in escrow someplace.”
Associated Press Writers Pat Milton in New York and Paul Elias in San Francisco contributed to this report.