Hsu's Financing Source Revealed

One of them, anyway.

Today's Wall Street Journal gives us the first answers to the big question that's been burning since the Norman Hsu Democratic fundraising scandal began to crack open two weeks ago: where did Hsu's money come from?

Most dogged by the scandal among Hsu's many dozens of political beneficiaries has been Hillary Clinton, not only because she received a significantly larger sum from Hsu and his shady fundraising network, but because the words "Clinton", "fundraising", "scandal", and "Chinese" tend to be combustible when mixed.  The good news for Hillary is that it appears the upstream source of Hsu's mysterious millions may not be a shadowy arm of the People's Republic of China.  The bad news is that the likely source tends to remind one of that other disagreeable attribute of the Clintonian backstory: that she's a hippie.

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.

Readers will recall that last week's field trip strongly suggested Components, Ltd. does not "exist", in the strictest sense.

The limited (if convoluted) details available about the transactions between Rosenman's Source Financing Investors (how appropriate) and Components, Ltd. suggest Rosenman and his investors were victims of a Ponzi scheme similar to those Hsu is said to have orchestrated in the past.  Great profits up front, but hold the bag for too long, and you get wiped out.

Mr. Rosenman's partner, Ms. Cheng, met Mr. Hsu while working for an Internet company in 2000. She began investing in one of his businesses and made a profit, according to someone familiar with the matter. In 2002, she joined JR Capital and introduced Mr. Rosenman to Mr. Hsu. That year, Mr. Rosenman invested and also made a profit. He began telling friends and relatives about the investment opportunity.

Mr. Rosenman described the deal in a pitch letter he provided to prospective investors for Source Financing Investors, which he launched in 2005. The investment pool would "lend to U.S. private label designers that needed interim financing to fill orders for a select group of well-known, high-end U.S. apparel retailers." Since 2001, he writes, "the return of these short-term (typically 4½ months) loans has been no less than 40%."

In a "step-by-step" outline of a typical transaction prepared for investors, Source Financing describes the way a deal worked with Mr. Hsu. Source Financing would agree to provide bridge loans for seasonal high-ticket, high-quality retail goods made in China for exclusive brand names, according to investors. Mr. Hsu told the company that he would obtain from Chinese manufacturers a price quote for apparel production. He would then add a mark-up and give the quote to a high-end buyer in the U.S.

If the U.S. buyer accepted, according to the outline, Source Financing would transfer by wire what Mr. Hsu said was 80% of the necessary loan, with Mr. Hsu saying he would provide the other 20% himself. Mr. Hsu told the investors he would then receive a letter of credit from a Chinese bank and that the manufacturer would ship the apparel to the U.S., where Mr. Hsu would deliver it to the merchant.

Mr. Hsu would give the investment firm a check, post-dated for 135 days beyond the wire transfer, for the amount of the loan plus profit. When the check matured, Source Financing would deposit it and allocate the money to investors. The company that would carry out these transactions, Mr. Hsu told investors, was Components Ltd., set up in 1997.

Last Sunday's New York Times revealed that during a one-month period, Components, Ltd. was a conduit for more than half a million dollars in checks and wire transfers, much of the outbound cash going to members of Hsu's fundraising network.

Hillary has recently pledged to return as much as $850,000 her campaign has received from Hsu's fundraising network.  In addition to Hsu's prior conviction for, unlawful flight from, and new suspicions of investor swindling, he is also under investigation for violations of federal election laws.  Suspicions arose after contribution patterns were observed among several of Hsu's bundlees, who often seemed to be making contributions to Hsu's favored candidates at a pace well beyond their apparent financial means.

Efforts to fully quantify the extent of this possibly criminally fraudulent political support are ongoing, but Hillary's latest disclosure suggests the total will certainly exceed $2 million and could reach millions higher, pegging it at or beyond the scope of the Jack Abramoff lobbying scandals.

In addition to the $850,000 taken in by the Clinton campaign, Hsu's suspicious contributions made their way into the coffers of another 80+ Democratic candidates (and one Republican), as well as dozens of Democratic committees, state parties, and advocacy groups.  Among the best-gilded were New York Governor Eliot Spitzer, New York Attorney General Andrew Cuomo, Iowa Senator Tom Harkin, Pennsylvania Governor Ed Rendell, and Massachusetts Senator Ted Kennedy.  While most recipients have pledged to return (or donate to charity) at least Hsu's direct support, none of these highest-paid Democrats, to my knowledge, has yet pledged to give up all Hsu-connected funds, with the exception of the Clinton campaign, which has not surprisingly been most severely embattled by the unfolding scandal.

But even as Hillary prepares to haul out her checkbook and re-enact one of the greatest scenes from The Jerk, we're left to scratch our heads as to why Norman Hsu is still celebrated on her campaign site as a HillRaiser...

While Hillary's announcement that she would turn over such a huge sum of money was surprisingly forthright [Too-forthright-to-be-true update below], it may be a while before we know the identity of the 260 contributors associated with those contributions.  If the campaign is protective of those identities (as they may well legitimately be, given that the campaign may cast a wide net among their supporters, in an attempt to err on the side of "over-refunding", knowing they'll inadvertently sweep up some unrelated parties), and chooses not to reveal them, we ought to at latest be able to piece the list together upon the next FEC campaign finance disclosure deadline, as each refund will (or should, anyway) be recorded as a separate transaction.

Meanwhile, Michelle Malkin wonders how Clinton can claim plausible deniability about Hsu's colorful legal history, when her Secret Service protection was presumably aware that the convicted felon and wanted fugitive (who was, after all, operating under his real name) was continually gaining very close physical access to the former First Lady.

Previously:
Hillary's Massive Hsu War Chest: Abramoff Parity Nears
Photoblog: Touring Norman Hsu's New York
Hsu Captured! (Drugged?)
Hsu Still A HillRaiser In Good Standing?
Knock, Knock, Knockin' On Norman's Door.
Hsu Reclaims Fugitive Status, Forfeiting $2 Million Bail
Hsu vs. Abramoff
New Hsu Review: Following [the Rest Of] the Money
A Really Big Hsu...
Hillary Vows To Give [At Least Some Of] Hsu Contributions To Charity
From Now On, When the Phone Rings You Say, "Vandelay Industries."
Hillary's Magwitch?

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Update: Yeah, that sounds more like it.  (HT: See-Dubya)

The [Clinton] campaign is refunding $850,000 to [Hsu’s bundled] donors, viewing the money as tainted. Yet the campaign is also risking another public relations mess by saying that it would take back the money if it clearly came from the donor’s bank account, not from Mr. Hsu or another source. The risk is that Mrs. Clinton will appear to want more cash no matter whether it was once colored by a disgraced donor.

The campaign will try to get most of the donors to give the money back right after the refunds, said a senior Democratic strategist who advises Mrs. Clinton’s campaign. “That’s the plan,” the strategist said.

Right - did they miss the crux of this fundraising scandal?  The suspicion is not that Hsu wrote $850,000 in contribution checks to the campaign, but that he used various friends and associates as straw donors, to be reimbursed by Hsu for "their" contributions, thus skirting the campaign finance laws.  I can save Hillary a lot of time right now and let her know that this money did come from each stated donor's bank account.  But that doesn't pretty up these contributions in the slightest.  That's precisely what's alleged to be happening.

It's difficult to pinpoint the purpose of refunding, then immediately grubbing back all that dirty money - is it A) a hollow attempt to appear candid and decent, without the bother of being candid and decent, or B) an effort to inflate her "gross receipts" stats in her ongoing fundraising battle with Obama by double-counting as many contributions as possible?