With A Little Help From My Friends

It was Clinton-campaign standard operating procedure: when on the defensive, deflect and attack. Earlier this month, Hillary Clinton surrogates invited onto TV talk shows were issued "talking points" in anticipation of awkward questions about the mysterious Norman Hsu. A top "HillRaiser"—someone who brings in more than $100,000 for the campaign—Hsu was wanted on an arrest warrant for a 1991 fraud conviction in California. (After failing to show up for a court appearance earlier this month, he was later arrested by the FBI after falling ill and writing an apparent suicide note.) If asked how Hsu's criminal record could have slipped through the cracks in the campaign's vetting process for donors, the Clinton supporters were instructed to say they hadn't participated in the vetting. If pressed, they were told to take a none-too-subtle swipe at Clinton's chief rival. "Long before Hillary's presidential campaign took money from Mr. Hsu, Mr. Obama's senate campaign had as well as a bunch of others," read the memo, given to NEWSWEEK by a Clinton supporter who didn't want to be identified revealing internal campaign communications.

Nobody handles campaign message control with more zeal or efficiency than the Clintonistas. (Campaign communications director Howard Wolfson and spokesman Phil Singer distributed the talking points.) Ever since the birth of the "war room" in the 1992 presidential campaign, Clinton operatives have perfected the art of cutting and thrusting, ducking and weaving, via fax and e-mail. Word that the Clinton campaign was returning $850,000 from about 260 donors tied to Hsu came at 6:40 p.m.—just in time to miss the evening news—on the eve of the anniversary of 9/11. But just how did Hsu's shady past escape the notice of Clinton's campaign fund-raisers?

The campaign had reason to beware of shadowy businessmen bearing gifts. In the 1990s, a legal fund set up to help President Bill Clinton had to return (or refuse to accept) at least $640,000 from an Arkansas businessman named Charlie Trie, whose Macau-based business partner had ties to the Chinese government. Hillary's campaign wants to avoid anything that might remind voters of Clinton scandals past. There was, however, at least one heads-up about Hsu. Last June, a southern California businessman warned the campaign that Hsu was involved in a Ponzi scheme. "I can tell you with 100 [percent] certainty that Norman Hsu is NOT involved in a ponzi scheme. He is COMPLETELY legit," wrote back Samantha Wolf, the former West Coast campaign finance director, according to an e-mail obtained by the Los Angeles Times.

Hsu was a defendant in multiple lawsuits dating back to 1985, had filed for bankruptcy in 1990 and had been a fugitive from justice since he failed to show up at his sentencing in a California state court after pleading guilty to fraud in 1991. But when the Clinton campaign checked databases looking for Hsu's name, the vetters did not use the two middle names he used in the California case, says a Clinton campaign spokesman. (From now on, the campaign will do criminal background checks on major donors.)

It's possible some Clinton campaign workers wouldn't have wanted to search too hard. With Barack Obama surprisingly raising more than Clinton in the first half of 2007 ($58 million to $54 million), the pressure has been on her to amass a war chest big enough to hold off challengers in the primary season. A Clinton official, who didn't want to be named discussing campaign fund-raising, denied that the campaign had relaxed its scrutiny to accommodate big donors like Hsu and noted that Hsu had already been vetted when he gave a $2,000 donation to Clinton's 2006 Senate campaign.

Other politicians have been happy to take Hsu's money. A Hong Kong native who graduated from the University of Pennsylvania's Wharton School of business, Hsu has long been involved in the apparel industry. He began showing up as a donor to Democratic candidates in 2004, when he gave money to John Kerry's campaign. He has since raised hundreds of thousands for Democratic candidates such as Sen. Ted Kennedy and New Jersey Gov. Jon Corzine. (Kennedy and Corzine said they were giving Hsu's donations to charity—as did Obama, who received $7,000 from Hsu for his Senate campaign and political-action committee.) Reportedly a warm and giving fellow who has repeatedly denied asking favors in return, Hsu was sufficiently big time by this June to co-host, along with mega-Wall Street investor Steve Schwarzman, a birthday party for Congressman Patrick Kennedy at the New York Yacht Club.

The campaign apparently moved to give back money from anyone tied to Hsu on the same day the Los Angeles Times reported that the FBI was investigating whether he had paid people to give money to Clinton and other candidates. It is illegal for donors to try to get around the limits on individual donations (a maximum of $4,600 combined for the nomination and general election) by funneling money through surrogates. Hsu's former lawyer, Lawrence Barcella, denies any suggestion that Hsu was playing this game.

A NEWSWEEK examination of donor records required under federal election laws suggests Hsu was perhaps even more deeply involved with the Clinton campaign than has been reported. In February, when former Iowa governor Tom Vilsack dropped out of the presidential campaign, he endorsed Clinton and became one of her chief campaign surrogates in the state. Though the Clinton campaign and Vilsack deny any quid pro quo, the Clinton campaign announced publicly it would help retire Vilsack's $450,000 campaign debt. (There's nothing improper about one campaign's helping another pay its debts.) Over the following three months, at least 51 Clinton donors, including 18 HillRaisers, poured $103,700 into Vilsack's empty coffers. Among them was Hsu, who donated the legal maximum of $2,300 on May 3 after attending an event for Vilsack organized by the Clinton campaign. On the same day, one of Hsu's associates, Paul Su, also gave $1,000 to Vilsack. "We absolutely were asking people to give to him," says Wolfson.

Hsu also shows up on the donor rolls of the Clinton Global Initiative, Bill Clinton's charity organization, to the tune of $30,000. (Clinton gave the money back.) The foundation that funds the Clinton Global Initiative also paid to build the Clinton library, but so far the foundation has refused to name the donors to the library. (A spokesman for the former president declined to say whether Hsu was on the list.) There is at least one candidate who sees some political advantage in raising the issue. Barack Obama has put forth an ethics proposal requiring the public disclosure of donors to federally supported presidential libraries. It appears that Obama is learning how to get in his own digs.