Clinton can't explain ignoring red flags on Hsu

NY Daily News:

Hillary Clinton's campaign couldn't explain yesterday why it blew off warnings about felon-turned-fund-raiser Norman Hsu - and the Daily News learned FBI agents are collecting e-mail evidence in the widening scandal.

Clinton was forced Monday to give back a whopping $850,000 raised by convicted scam artist Hsu after learning his investment ventures were being probed by the FBI as a potential Ponzi scheme.

She earlier gave to charity $23,000 Hsu donated himself after reports revealed he fled sentencing for a $1 million scam in California in 1992.

Yesterday, the campaign insisted it did all it should to vet Hsu after California businessman Jack Cassidy warned in June that Hsu's investment operation was fishy. Cassidy e-mailed his tips to the California Democratic Party, which forwarded them to the Clinton campaign.

Cassidy did not want to talk about the case, saying he doesn't want to jeopardize the FBI's efforts. But he wants Hsu prosecuted. He told The News that Hsu was a reverse Robin Hood - "a hood robbin' the poor to give to the rich."

His warning "prompted a search of publicly available information, which did not reveal Mr. Hsu's decade-plus-old warrant," said Clinton adviser Howard Wolfson. He would not say why the campaign didn't follow up on specifics Cassidy included to explain his suspicions.

"They knew [about Hsu], and they knew back in June," a source told The News.

Cassidy raised a red flag after a friend came to him with a tale of being offered 64% annual returns by Hsu.

"It was either predatory lending or a Ponzi scheme," the source said, adding that the FBI had interviewed Cassidy and took as evidence numerous e-mails he sent to political officials about Hsu.

Camp Clinton never responded to Cassidy, but dealt with the worried California party members. According to the Los Angeles Times, Clinton's Western finance director, Samantha Wolf, e-mailed, "I can tell you with 100% certainty that Norman Hsu is NOT involved in a Ponzi scheme," adding, "He is COMPLETELY legit."

Wolf no longer works for the campaign. Wolfson declined to explain her departure. He also refused to discuss how Hsu insinuated himself into Clinton's good graces, to identify who was his primary contact or explain how the campaign handled him.

Hsu-raised cash also went to Clinton's Senate campaign and political action committee. Wolfson said the '08 campaign was working on what to do about that.

With the scandal growing, other Democrats who feasted off Hsu's collection plate - including Clinton rival Sen. Barack Obama and Sen. Chuck Schumer's Democratic Senatorial Campaign Committee - were trying to decide whether they should give back cash he "bundled."

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Longtime Clinton foe Judicial Watch signaled it will join G-men and journalists on Hsu's trail and try to pressure the Justice Department and Senate Ethics Committee to take action.

"Were they knowingly benefiting from illegal straw donor contributions? Were they put on notice?" asked Tom Fitton, president of the conservative watchdog group.

Rush Limbaugh noted that this story has still not broken into the major networks nightly news shows. However, it is a case that can be investigated with documentary evidence and business records. Email and other correspondence may have some limited impact on the investigation. It is always possible that there may be a smoking gun memo to a file, but it is unlikely. The real evidence will be in the transfer of funds as recorded by banks and other financial institutions.

The case will not go away even if Clinton unravels the funds she has already received.

Meanwhile a source of Hsu's funds has been found by The Wall Street Journal.

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New documents reviewed by The Wall Street Journal may help point to an answer: A company controlled by Mr. Hsu recently received $40 million from a Madison Avenue investment fund run by Joel Rosenman, who was one of the creators of the Woodstock rock festival in 1969. That money, Mr. Rosenman told investors this week, is missing.

Mr. Hsu told Mr. Rosenman the money would be used to manufacture apparel in China for Gucci, Prada and other private labels, yielding a 40% profit on each deal, according to a business plan obtained by the Journal. Now the investment fund, Source Financing Investors, says Mr. Hsu's company owes it the $40 million, which represents 37 separate deals with Mr. Hsu's company. When Source Financing recently attempted to cash checks from the company, Components Ltd., the investors say they were told the account held insufficient funds.

Source Financing's arrangement with Mr. Hsu's company, according to court documents and investor accounts, echoes an older matter that came to light in recent weeks. In 1991, California officials charged Mr. Hsu with grand theft for failing to repay investors for money he raised to import latex gloves from China.

"Norman Hsu has an extraordinary ability to deceive," says Seth Rosenberg of Clayman & Rosenberg, a lawyer representing Mr. Rosenman.

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There is much more. There is some irony in Seth Rosenberg's description of Hsu since similar statements have been made about Hillary Clinton and her husband. It is also ironic that Hillary began her questioning of Gen. Petraeus by suggesting that his truthful required the "suspension of disbelief." She will probably hear that phrase often as she tries to explain herself in the coming days.