Investors, prosecutors seek piece of disgraced fundraiser Hsu

Even as he sits in the suburban Bay Area jail that once housed condemned killer Scott Peterson, Norman Hsu is still a wanted man.

Jilted investors who sunk $63 million into Hsu's alleged Ponzi schemes are competing for whatever financial crumbs they can shake from the disgraced Democratic fundraiser. At the same time, state and federal prosecutors are wrangling over where he should be jailed.

"We have the body," California Deputy Attorney General Ronald Smetana argued last week outside San Mateo Superior Court after a shackled Hsu was ordered held without bail.

Hsu's fall from top-tier fundraiser has been swift: He turned himself in on a California fraud case last month after 15 years as a fugitive, then skipped the next court hearing, fled on an Amtrak train and was arrested at a Colorado hospital after attempting suicide on the train.

Now the man who once fashioned himself as a wealthy businessman capable of raising large amounts of campaign cash isn't wanted by politicians, but in the courts. Candidates are scurrying to return Hsu's money and distance themselves from him.

On Wednesday, a state judge in Manhattan refused to freeze the contributions Hsu made to several New York politicians, including Sen. Hillary Rodham Clinton, Gov. Eliot Spitzer and Attorney General Andrew Cuomo because their lawyers were not in court. But the judge did freeze Hsu's bank accounts and sealed his Manhattan apartment at the request of investors.

Earlier this week, state prosecutors said they intended to keep Hsu in the Redwood City jail on the fraud charges until he is sentenced in the 1991 case that alleged he stole $1 million from family, friends and others who thought they were investing in a clothing deal. Hsu pleaded no contest to grand theft in 1992 and agreed to a maximum prison term of three years. He fled California before he was formally sentenced. Investigators believe he went to Hong Kong.

Hsu's defense attorney, James Brosnahan, has said he intends to exploit a California law that requires the same judge who takes a defendant's plea to mete out the sentence. The judge who took Hsu's plea has since retired.

Brosnahan also has said he will seek to undo the plea and force prosecutors back to square one.

Smetana said there's scant legal precedent to help guide a judge in deciding whether to let Hsu out of his more than decade old plea.

Smetana said he will argue it's simply not fair to let Hsu benefit from absconding from justice for 15 years.

Federal prosecutors in New York, where Hsu is also charged with fraud, have said they will seek Hsu's transfer to federal custody. But state officials insisted he will remain in California for a while.

"The normal rule is if you have the body, you have primary custody," said Rory Little, a former federal prosecutor who is now a law professor at the University of California, San Francisco. "The state has primary custody."

Little said typically prosecutors try to informally negotiate who will first prosecute a person facing charges in both jurisdictions. Failing a negotiated resolution, Little said it appears California has the advantage.

Smetana said he has been talking to federal prosecutors, but declined to elaborate on those conversations. A spokeswoman for the U.S. attorney's office in Manhattan declined to comment.

The two sides are also dueling over the $2 million Hsu used to post bond when he turned himself in to California authorities on Aug. 31. A judge ordered the money forfeited when Hsu skipped a Sept. 5 court appearance.

Now that he's been found and jailed, Hsu wants his bail money back. But state prosecutors are fighting to keep the money with the government so it can be used to compensate victims of Hsu's early 1990s Ponzi scam.

Hsu's investors who are suing to recover their alleged losses are actually rooting for Hsu to win that battle for the bail money. They say it will be far easier to compel Hsu to fork over the money than the government.

"Once the state has its hands on the money, it's not really interested really in letting go of it," said Ronald Minkoff, a New York lawyer representing the East Coast investors who claim $40 million in losses.

Minkoff is also going after the hefty retainer Hsu presumably paid Brosnahan, his high-priced Silicon Valley criminal defense attorney.

Many of the investors on both coasts who claim they were duped by Hsu are pursuing the same assets. The problem is, there may not be much left to divvy out.

According the FBI, there's about $83,000 left in one of Hsu's bank accounts. He rented his luxury Manhattan apartment, and when he was arrested he was carrying about $8,000 in cash, the FBI says.

"To a degree, we are competitors," said William Bollard, the Irvine attorney representing a group of Orange County investors. "There is a little bit of a race to the finish line."

RUSH: Of all places, by the way, this is in the Boston Globe today: "Disgraced fund-raiser Norman Hsu did a lot more than just pump $850,000 into Hillary Clinton's campaign bank account: He also raised hundreds of thousands of dollars for local, state, and federal candidates who have endorsed Clinton or whose support she courted." She had a nice little operation going here. It's just not conceivable that she's telling the truth when she said she really had no idea who Hsu was because "we can't vet all of our bundlers, we simply don't have the records." Terry McAuliffe went out there, "Yeah, we can't do that, there's too many of them. We ran Hsu through the computer, nothing showed up." Hardy-har-har -- not believable! "Hsu has been a major fund-raiser for Democrats since 2003, Hsu became one of Clinton's biggest bundlers -- gathering scores of individual checks and sending them to her campaign. But since revelations last month that Hsu was a fugitive in a 15-year-old California fraud case, Clinton has said she would return the $850,000 she has taken from him and his associates."

Yeah, we never get proof that this happens. All we hear is that they say they're going to do it. "In at least some cases, Clinton or her aides directly channeled contributions from Hsu and his network to other politicians supportive of her presidential campaign, according to interviews and campaign finance records. There is nothing illegal about one politician steering wealthy contributors to another, but the New York senator's close ties to Hsu have become an embarrassment for her and her campaign," because she's denying that there have been any close ties. "In February, when former Iowa governor Tom Vilsack ended his own White House bid, he was about $450,000 in the red. A month after dropping out, Vilsack endorsed Clinton, and Clinton agreed to help him retire his debts. (Both insisted there was no quid pro quo.)" Why would anybody think that? No, of course not!

"Over the next few months, some of Clinton's biggest fund-raisers gave Vilsack checks, including Hsu, who kicked in the maximum allowable contribution, $2,300. On May 3 after attending an event organized by Clinton's campaign, Newsweek reported this month. An associate of Hsu's, Paul Su, chipped in $1,000 on the same day. In other cases, Clinton helped direct Hsu's money to influential politicians who have yet to endorse her but hail from key presidential primary states. Clinton raised at least $6,000 from Hsu and his network last year for Governor John Lynch of New Hampshire, according to Lynch aides. Lynch has no plans to endorse anyone before the state's crucial January primary, aides said. Clinton said in a National Public Radio interview last week that Hsu's past was 'a rude awakening to all of us - I mean, not only in my campaign, but the dozens of campaigns going back to, I guess, 2003 and '04 who, you know, took contributions. None of us caught this and we all ran searches.'" Oh, yeah: "We really tried to find out who this guy was, we just had no idea!"

I mean, two outstanding federal warrants and they couldn't find out who he was. I guess you guys all had a rude awakening with Congressman William Jefferson (Democrat-Louisiana), too, when the 90 grand in cold cash was found in his freezer. So it stinks to high heaven and I just love this. The ethics the government crowd has out there on the left... They don't want voter ID; they don't want George Soros investigated or exposed for what he's doing, and, of course, they're running for the tall grass now from Norman Hsu. This is a lot of smoke, and with this much smoke there has to be some fire.

The point is that this is stolen money from the investors or it is not! What makes this any different than if Hsu had been embezzling this money from a bank? Are they really saying that it makes a difference as to WHO receives the stolen money? Yikes!

This is a key point. The lack of aggressiveness on that angle by the investors' attorneys is puzzling. Rosenman's attorney rattles the Breshnahan retainer cage for what--$100k maybe?--while making ineffectual noises at the funds that went to politicians. I would think that going after the Breshnahan retainer has shakier legal basis than going after the donations. Defendant does have a right to counsel, So the argument is an esoteric one about fees, i.e.how much is too much.

From what's been reported, it looks to me that the lawsuits are more indignant theater than anything else, designed to protect Rosenman and Waters from individual investors in the funds--who, I believe, continue to be duped by Rosenman and Waters' singular focus on Hsu.

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