Thursday, September 13, 2007

The $40 Million Dollar Man

Was this Norman Hsu's source of money? The New York Times reports that:

New details emerged yesterday about the finances of the mysterious Democratic fund-raiser Norman Hsu, with the revelation that a private equity fund representing about 100 investors in New York gave him $40 million this year for a loan pool he said would generate a high rate of return. ...

The lawyer, Seth Rosenberg, said that managers of the investment fund tried in recent days to cash checks from Mr. Hsu but that they were returned because of insufficient funds. The concerns about the fate of the investment were first reported yesterday by The Wall Street Journal.

Mr. Rosenberg represents Source Financing Investors, a fund with about 100 participants that is managed by Joel Rosenman, who has said he met Mr. Hsu through a mutual acquaintance five years ago. Mr. Hsu told potential investors that he was pooling money to make short-term loans to private-label fashion designers in the United States to buy garments made in China, and that typical returns for someone who invested in the pool exceeded 40 percent.

Suitably Flip has more detail on what may be a reprise of Hsu's original Ponzi scheme. The Online Wall Street Journal describes Hsu's "step by step" investment process.

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.

The Ponzi scenario does not require the Hsu incident to include foreign entanglement. Hsu's dealings an be explained purely as a criminal enterprise. And Hillary becomes just another victim of the designing Norman Hsu. In a Newsday article, Rosenberg said Hsu:

has an extraordinary ability to deceive. It appears that Source Financing Investors has joined Hillary Clinton, Bob Kerry and many others as his victims.

But a few problems remain. Why did Hsu surrender after his 15 year stint as a fugitive? Was the political money really provided by contributors or did it come from the Ponzi scheme? What quid pro quo, if any, did Hsu expect for his donations to politicians? Or was his hobnobbing with politicians all to attract yet more investors into his pyramid scheme?


Blogger Soldier's Dad said...

"Mr. Hsu told potential investors that he was pooling money to make short-term loans to private-label fashion designers in the United States to buy garments made in China, and that typical returns for someone who invested in the pool exceeded 40 percent."

Slick way for the Chinese Government to donate to their preferred Presidential candidate.

Arrange for a huge cut rate deal on some Chinese products brokered by their man in New York, who then donates his profits to political campaigns.

The latest craze in skirting campaign finance laws...just sell you candidate of choice, or middle man of choice something way below is real price.

9/13/2007 08:55:00 AM  
Blogger Peter Grynch said...

Weird News of the Day: America's most famous bond-jumper may soon get out on bond!

Clarice Feldman explains:

Norman Hsu's been transferred from the hospital to the local jail awaiting extradition to California.

I do not understand the Mesa County (Colorado) prosecutor's office. After Hsu pleaded guilty to the felony charge in San Mateo he twice jumped bond, but the prosecutor is talking about seeking bond again:
Fugitive Yung Yuen "Norman" Hsu will be transferred to the Mesa County Jail sometime tonight, Mesa County District Attorney Pete Hautzinger confirmed this afternoon.

Hautzinger said he was told today to be prepared to handle Hsu's bond-setting hearing Thursday.

Hautzinger said he plans to ask for at least $4 million bond for the wealthy businessman. One day before Hsu was arrested in Grand Junction, he skipped a bond hearing in a San Mateo, Calif., courtroom.

9/13/2007 09:01:00 AM  
Blogger Nomenklatura said...

This is amusing on so many levels, including:

- The idea that the Clintons may have been embroiled in this mess by someone with "an extraordinary ability to deceive" (do ironies come any richer than that?)

- The possibility that, like some comedy caper movie (cf. the excellent classic Dirty Rotten Scoundrels), everyone involved may have thought they were helping an allied dupe to rip off a third party for their own benefit. Hsu thought he was using Democratic politicians to attract investors into his latest Ponzi scheme. Hillary thought she was trading favors with Hsu by directing people in her donor network to him in exchange for the additional political contributions she knew would be the result. Joel Rosenman thought he was using Hsu to generate returns high enough that he wouldn't actually have to manage his clients' money. And so they all were, until the scheme blew up in their faces. This is looking increasingly like the perfect collision of three lifelong dedicated scam artists. What a farce!

9/13/2007 11:46:00 AM  
Blogger Alan said...

Good work on following up on the $40 million man. Any chance of a post investigating the missing $9 BILLION from Iraq? This month's Vanity Fair might be a good place to start.

9/13/2007 12:42:00 PM  
Blogger Kinuachdrach said...

40% return on money loaned out for 135 days? OK, maybe the 40% is an annualized figure -- can't expect financial journalists to pay attention to these kinds of details.

Still, if a broker called up Public and asked if he wanted to invest in a scheme that makes 40% return in a year or less, my guess is that most Joes would hang up. If is sounds too good to be true, it is!

The only rational explanation for a high return would be that there was also a high risk of default. So why did these financial Whizz Kids put $40 Million of Other People's Money into the deals? Enquiring minds want to know!

9/13/2007 03:38:00 PM  
Blogger Stephen said...

Heh. This reminds me of my 7th grade lesson in con artistry. Through a third party my much much younger self was handed a note from "x" who, coincidently, needs to borrow a dime. I fork over the dime and read the note as the third party makes off.

"Congratulations! You are now a member of the Swiss army. Your dime has gone to buy guns to shoot holes in Swiss cheese!"

So Hsu me. Try.

9/13/2007 03:39:00 PM  
Blogger Peter Grynch said...

Among the best-gilded (recipients of Hsu's largesse) 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.

Compare the liberal media's lack of interest to the feeding frenzy during the Jack Abramoff scandal.

Media bias? There's nothing to see here! Move along...

9/13/2007 06:08:00 PM  
Blogger David M said...

Trackbacked by The Thunder Run - Web Reconnaissance for 09/14/2007
A short recon of what’s out there that might draw your attention, updated throughout the check back often.

9/14/2007 10:01:00 AM  

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