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?