Hsu Charged With Fraud in New York

Federal prosecutors charged Democratic fundraiser Norman Hsu with breaking campaign finance laws and creating a "massive" Ponzi scheme.^[1] The complaint says Hsu who raised hundreds of thousands of dollars for Democratic presidential front-runner Hillary Rodham Clinton and others violated campaign finance laws by making contributions to candidates in other people's names and perpetrated a Ponzi scheme^[2] to defraud citizens across the United States of more than $60 million.[3] These charges are the latest in a string of many charges leveled against Hsu.

In 1991, California authorities brought fraud charges against him, describing his operation as a Ponzi scheme.^[4] 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.^[5] Then 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.^[6] Hsu subsequently failed to appear at the sentencing hearing and a warrant was issued for his arrest.^[7] Hsu had fled to Hong Kong and lived there from 1992 to 1996 while working in the garment industry.^[8]

This summer when news reports revealed Hsu’s criminal history and warrants were issued for his arrest, politicians began returning his money.^[9] Hillary Clinton said she would give back $850,000.^[10] Investors in Hsu's business ventures also began claiming that they had been defrauded.^[11] Source Financing Investors, a fund run by one of the creators of the 1969 Woodstock rock festival, complained to Manhattan prosecutors that it put $40 million into Hsu business ventures that it now suspects were fraudulent.^[12]

The New York charges are the latest in a string of legal issues that Hsu must deal with. In Colorado, the Mesa County sheriff released Hsu to officials from California, where he faces a 15-year-old felony theft conviction^[13], and in California Hsu faces new federal charges for unlawful flight to avoid prosecution.

Unlawful Flight to Avoid Prosecution
Flight to avoid prosecution or giving testi­mony is covered under 18 U.S.C. § 1073 wherein it states that whoever moves or travels in interstate or foreign commerce with intent either 1) to avoid prosecution, or custody or confinement after conviction, under the laws of the place from which he flees, for a crime, or an attempt to commit a crime, punishable by death or which is a felony under the laws of the place from which the fugitive flees,^[14] or 2) to avoid giving testimony in any criminal proceedings in such place in which the commission of an offense punishable by death or which is a felony under the laws of such place, is charged,^[15] or 3) to avoid service of, or contempt proceedings for alleged disobedience of, lawful process requiring attendance and the giving of testimony or the production of documentary evidence before an agency of a State empowered by the law of such State to conduct investigations of alleged criminal activities, shall be fined under this title or imprisoned not more than five years, or both.^[16]

For the purposes of clause (3) of this paragraph, the term “State” includes a State of the United States, the District of Columbia, and any commonwealth, territory, or possession of the United States.^[17]

Violations of this section may be prosecuted only in the Federal judicial district in which the original crime was alleged to have been committed, or in which the person was held in custody or confinement, or in which an avoidance of service of process or a contempt referred to in clause (3) of the first paragraph of this section is alleged to have been committed, and only upon formal approval in writing by the Attorney General, the Deputy Attorney General, the Associate Attorney General, or an Assistant Attorney General of the United States, which function of approving prosecutions may not be delegated.^[18]

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^[1] Pat Milton, Hsu Charged With Fraud in NY, Associated Press Newswire, September 20, 2007, available at available at LEXIS, News Library, Wire News Services.
^[2] Bill E. Branscum, Ponzi Schemes, FraudsandScams.com, 1999, available at http://www.fraudsandscams.com/ponzi.htm (last visited September 20, 2007); see also U.S. SEC website, Ponzi Scheme Definaition, http://www.sec.gov/answers/ponzi.htm (last visited September 20, 2007) (A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi).
^[3] Milton, supra note 1.
^[4] Id.
^[5] Mike McIntire, Leslie Wayne, Clinton Donor Under a Cloud In Fraud Case, The New York Times, August 30, 2007, available at http://www.nytimes.com/2007/08/30/us/politics/30bundler.html?_r=2&oref=slogin&oref=slogin (last visited September 20, 2007).
^[6] Greg Miller, Chuck Neubauer, Wealth, mystery surround donor Hsu, Los Angeles Times, August 31, 2007 available at http://www.latimes.com/news/politics/la-na-hsu31aug31,0,7233072.story (last visited September 20, 2007).
^[7] Chuck Neubauer, Robin Fields, Democratic fundraiser is a fugitive in plain sight, Los Angeles Times, August 29, 2007, available at http://www.latimes.com/news/local/la-na-hsu29aug29,1,6341933.story (last visited September 20, 2007).
^[8] Id.; Miller, supra note 4.
^[9] Miller, supra note 1.
^[10] Id.
^[11] Id.
^[12] Id.
^[13] Id. In that case, state prosecutors accused him of fraudulently persuading investors to pump money into a clothing import business that didn't actually exist. He pleaded no contest, and left town before he could be sentenced. Investigators believed he fled to Hong Kong.
^[14] 18 U.S.C §1073 (1)(2007).
^[15] Id., at §1073(2).
^[16] Id., at §1073(3)
^[17] Id., at §1073
^[18] Id.