Morning Edition, September 11, 2007 · Democratic presidential hopeful Sen. Hillary Clinton will return thousands of dollars in campaign contributions from an embattled fundraiser.
Norman Hsu, who picked up $850,000 in campaign contributions for Sen. Clinton, D-N.Y., was arrested last week after tying to escape sentencing on a decade-old criminal charge.
Clinton's campaign said on Monday that the arrest and allegations that Hsu engaged in an illegal investment scheme aided the decision to return the funds.
"In light of recent events and allegations that Mr. Hsu engaged in an illegal investment scheme, we have decided out of an abundance of caution to return the money he raised for our campaign," read a statement by spokesman Howard Wolfson.
A total of 260 donors will get their contributions back.
Sen. Clinton is the first to return money that's considered tainted because Hsu raised it. Her campaign also said its top bundlers – those who raise the money – will be subject to criminal background checks.
Jason Lewis was ranting about this story today.
Clinton "simply didn't want to have to keep answering questions about a bundler whose background is now clearly in question," a senior adviser said, speaking on the condition of anonymity.
Although Clinton will return the money raised by Hsu, Wolfson said the individual contributors could make new donations.
"We will accept their contributions and ask them to confirm for our records that they are from their own personal funds," he said in an e-mail.
Clinton's campaign chairman, Terence R. McAuliffe, declined requests to explain how Hsu had become so prominent in her fundraising.
A portion of the money, at least $29,300, will be returned to members of a single family -- the Paws -- who live modestly in a small house near the San Francisco airport. The Paw family members first attracted attention to Hsu because they were writing large checks to the Clinton campaign even though they held such modest jobs as a postal carrier and a nurse.
It is illegal for a bundler to reimburse donors for the campaign checks they write because it would violate strict federal limits on how much an individual can donate to a candidate.
Lawrence Barcella, a Washington lawyer who has defended Hsu against allegations that he was funneling money back to the Paws in exchange for their donations, said the Paws had other sources of income to support their hefty schedule of giving, which included more than $200,000 in checks to scores of other Democratic candidates over the past four years.
Others expected to get their money back include a range of employees for various firms -- most in the apparel industry -- that have been connected to Hsu. And there are many more who have regularly appeared among Hsu's stable of donors, such as the owners of a San Francisco gift shop, the Lim family, whose connections to him are unclear.
A report emerged yesterday that the Clinton campaign ignored warnings about Hsu. Earlier this summer, Democratic Party officials raised questions with the campaign about whether Hsu had been involved in an illegal Ponzi scheme, according to a source familiar with the exchange. (The Los Angeles Times first reported yesterday that a Clinton finance director for the West Coast brushed aside questions about Hsu.)
The source, who would speak only on the condition of anonymity, said the Clinton finance team did a second search of public records looking for any problems based on the allegations and found none. The campaign did not directly talk to Hsu about the allegations, the source said.
Kent Cooper, the Federal Election Commission's former chief of public disclosure, said Clinton's move to shed the tainted money was "a stunning development" certain to affect other campaigns in what is shaping up to be the most expensive election in history. The presidential candidates in both parties raised about a quarter-billion dollars in the first half of this year.
"The financial controls of these campaigns as they get bigger and bigger and raise more money need more resources," Cooper said. "It is a smart move by the Clinton campaign . . . to try to get ahead of the issue and claim some leadership on double-checking fundraisers and activities.
"To seek permission to do criminal backgrounds indicates a willingness to take more responsibility for the personal actions of these big fundraisers out in the field and will bring extreme pressure on other candidates to more carefully monitor and control their fundraisers," he said.
The New York senator's campaign staff had pondered the move for several days but acted after Clinton awoke Monday to a report in the Los Angeles Times that the FBI was examining a Hsu venture in which some investors said they had been pressured to make political donations to her.
"She saw that an investigation was proceeding and personally instructed us to sever all connections with Hsu and his network of donors," said a campaign source familiar with the events who was not authorized to discuss internal campaign dealings.
Before the announcement, new evidence surfaced that the Clinton camp had dismissed allegations about Hsu made by a Southern California businessman. In an e-mail obtained by The Times, a Clinton campaign staffer told a California Democratic Party official in June that the businessman's concerns were unwarranted.
"I can tell you with 100 certainty that Norman Hsu is NOT involved in a ponzi scheme," wrote Samantha Wolf, who was a campaign finance director for the Western states."He is COMPLETELY legit."
In fact, Hsu was a fugitive wanted on a 15-year-old bench warrant stemming from an early 1990s investment fraud case.
The businessman's query prompted Clinton staffers to review public records about Hsu, but no problems surfaced, the campaign source said. In part because of that incident, the campaign also announced Monday that it would institute more stringent procedures to vet major contributors, including running criminal background checks.
Stanley Brand, a former House counsel who often represents legislators in ethics matters, called the Clinton campaign's decision "a ground-shifting event," though not a step he would have recommended.
"I understand it's politically driven. They don't want to be tainted," he said. "But they're going to give back a lot of money if they do this every time there's an allegation against a fundraiser."
Kudos to the LA Times, which was turning over rocks on this story.