Oct 6, 8:05 PM EDT


SEC sues Democrat fundraiser for alleged $60M scam

SAN FRANCISCO (AP) -- Federal regulators on Monday sued political fundraiser Norman Hsu for allegedly operating a $60 million investment scam and using some proceeds to contribute to Sen. Hillary Rodham Clinton and other prominent Democrats.

The Securities and Exchange Commission filed a lawsuit in U.S. District Court in Los Angeles that accuses Hsu of using a company called Next Components to solicit investments that promised high rates of return by providing short-term loans to other companies.

Instead, Hsu used the investments to pay off early investors in a classic Ponzi scheme while using the rest to make political contributions and support a lavish lifestyle, the lawsuit states.

The SEC is seeking to recoup the investors' money and financial penalties.

Public records show Hsu donated millions to numerous Democratic campaigns since 2003. He also attended many well-publicized fundraisers.

Hsu was indicted last year in New York on federal charges of fraud and violating campaign finance laws - a case that came on the heels of a 1992 conviction in California for bilking investors of $1 million. He was declared a fugitive for a while in that case, but finally was sentenced in January to three years in state prison. He has been moved to a jail in New York to await the federal trial.

Federal prosecutors said a year ago that Hsu hoped the profligate campaign spending would raise his public profile enough to draw money to his scheme.

"He allegedly then used the veneer of respectability created by his political connections to persuade his investors that the investments he offered were legitimate," said Linda Chatman Thomsen, director of the SEC's division of enforcement.

The federal indictment alleges that Hsu lost at least $20 million of the investor money, and says the rest of Hsu's assets are frozen. The federal criminal case is scheduled for January.

"He plans to contest the charges," said Martin Cohen, his defense attorney in the case.

Hsu raised more than $1.2 million for Clinton and other Democratic candidates in recent years.

The Clinton campaign returned more than $800,000 to donors whose contributions were linked to Hsu after it was revealed in 2007 that he was wanted in California since 1992, the year he fled the state after pleading no contest to bilking investors of $1 million.

He voluntarily returned to California and posted $2 million bail in August 2007, claiming that the 1992 conviction was a misunderstanding.

The next month, Hsu skipped a court hearing in Redwood City, Calif., and was once again declared a fugitive. He was arrested days later in a Colorado hospital after trying to commit suicide by drug overdose on a train.

He was ultimately sentenced to three years in a California state prison for the 1992 conviction and now faces a maximum sentence of 20 years in federal prison if convicted of the latest charges.

In May, a federal judge in Los Angeles ordered Hsu to pay $28.8 million to aggrieved investors who sued him. Hsu wasn't represented by a lawyer in that case and never responded to the lawsuit.