The Clinton Campaign's Reckless Race for Big Money Donors

Why the Problems with Clinton Inc. Could Sink the Democrats in 2008

By AL GIORDANO - Oct 1, 2007

The $850,000 that conman Norman Hsu bundled for Senator Hillary Clinton's presidential campaign are the gifts that Clinton will have to keep giving back, harming her presidential hopes not just monetarily, but also morally and politically.

Hsu's upcoming court hearings together with a newly filed civil suit in California, plus the criminal (and likely civil) complaints pending against him in New York, will soon blast in stereo from the media capitals of both coasts. The courtroom fireworks will take away a considerable amount of the message control that the Clinton campaign has, until now, been able to deploy.

It's a story with sizzle and steak. Major media organizations including The Washington Post, The Los Angeles Times, The New York Times, The Wall Street Journal and Newsweek have put many of their top investigative reporters on the trail through which a fugitive from justice rose to become one of the Clinton campaign's top 15 fundraisers. With each new report, new lines of investigation open; the story has so many legs it's a caterpillar. Although very potentially harmful to Clinton's ambitions, the increasing scrutiny on those that provide and raise the millions required to win election to national office is long overdue and should be cleansing for democracy.

Last May, The Nation's Ari Berman filed an important story about the Clinton campaign's ties to corporate America, "Hillary, Inc." It captured the contradictions inherent in a candidate who speechifies against an economy that skews toward "the privileged and the powerful at the expense of everybody else" while playing footsie under the table with those same interests. Yet the focus on the corporate nature of Clinton, Inc. isn't entirely negative for the senator's campaign: it can also imply--to voters made cynical by the constraints capitalism imposes on democracy--a level of businesslike competence in the rough and tumble realities of electoral campaigns.

The Hsu case is more dangerous for Clinton's aspirations because it shows the incompetent underside of the Clinton organization; a sloppy and careless venture that back in the era of "1990s values," was sufficient to help it politically survive its own self-inflicted wounds. But in this higher tech, faster information-flow, closer scrutiny 21st century that is upon us, the trademark recklessness that got the Clinton organization through eight years in power now veers toward disaster.

Nineties Values

Scratch the surface of the Hsu scandal, and find a confirmation of the unacceptable risks for the Democrats if the 2008 general election becomes a referendum on the Clinton White House of the 1990s. It offers a looking glass into the inevitable disillusionment and scandal that would follow a Clinton nomination. And even if candidate Clinton were able to best a similarly flawed Republican nominee, her executive branch would end up besieged, unable to comply on campaign promises, because it will be placed on the permanent defensive by its own serial ethical lapses.

The problem is not Norman Hsu, his Ponzi schemes, or his tragic figure now rolling down the treadmill toward the buzz saw of justice. Hsu is not an isolated case. It is emblematic of the malignant negligence of the front-running Democratic candidate and her organization, the lack of due diligence when money is involved and the carelessness it exhibits.

The Hsu scandal involves both Senator and Bill Clinton -- you can't pull them apart on this one; two birds on the same wire hit by their own boomerang -- and it offers demonstrable proof that the protagonists that seek another Clinton White House have not learned well from the lessons of the first.

The Los Angeles Times reported that a seeming nobody like Hsu was able to glom onto the highest status in the Clinton organization:

When Bill Clinton received an award at a gala dinner honoring the late Robert F. Kennedy last year, the former president expressed his thanks before an audience that included a Nobel Prize winner and a glittering array of show business celebrities and Wall Street titans. Yet the second sentence of his remarks expressed special gratitude to a man almost no one there had heard of: "our friend Norman Hsu.

The former president still enjoys lifetime protection from the U.S. Secret Service, an agency that conducts a background security check on anyone that gets physically close to its charges. If the Clinton campaign did not know about Hsu's criminal debt with society, it is highly unlikely that the Secret Service--part of the US Department of Homeland Security, and answerable to the executive branch--was also ignorant. The Bush-Cheney administration's Secret Service had no legal obligation to inform the Clinton campaign that a warrant for the top fundraiser's arrest was outstanding from the state of California because it did not present a physical security threat to the Clintons. The threat was, instead, political, and so the ace was held up-sleeve.

Was the administration saving that red-hot news story for later, allowing Hsu to rack up even more campaign dollars for the Clinton campaign, to achieve his stated ambition of becoming Clinton's first one-million dollar bundler, to receive more praise from the candidate, pose for more photos at the right hand of power, only to then send the scandal swooping down upon the presumptive Democratic nominee like a smart bomb in, say, October '08? A strong indication of that likelihood came just weeks after The Wall Street Journal, in late August, opened season on journalistic scrutiny of Hsu, when federal prosecutors in New York "unsealed" a criminal complaint against Hsu that they have been quietly building all along.

The clandestine nature of the pending prosecution might well represent an unfair, even Nixonian, misuse of federal power ("a vast right-wing conspiracy," in Clintonspeak) to protect Republican continuance in the White House, but it was made possible by the irresponsibility and negligence that has always been, and continues to be, the dominant tendency of Clinton organization fundraising.

The Hsu case shattered the nostalgic amnesia regarding the Clinton years, harkening back to the day in March, 1996, when then 22-year-old Yah Lin "Charlie" Trie, of Little Rock, Arkansas, handed an envelope with $460,000 in bundled contributions, each at or under the $1,000 legal limit of the time, to President Bill Clinton's legal defense fund. The contributions were obviously bogus: they included money orders, sequentially numbered, in different names but in the same handwriting. And the Clinton organization evidently knew something was amiss: $70,000 worth of the contents of the brown envelope was returned, but another $378,300 was deposited. "Don't report names if $ are returned," wrote Clinton campaign operative Howard Ickes in an internal memo that later surfaced to public light. Then as now, when the scandal erupted, the campaign returned all of those donations. (Ickes, today, remains a high level Clinton '08 fundraiser, under another architect of many of the 1990s Clinton fundraising blunders; Clinton finance chairman Terry McAuliffe.)

As the Washington Post recently noted, "The eerie echoes of the last Clinton campaign finance scandal are what make the Hsu case so problematic for the current Democratic presidential frontrunner," adding that the current scandal sticks harder to Clinton than it would to others because no other candidate for president "has that history to overcome."

The Clinton organization had been warned that Hsu could become a problem for them (one campaign staffer replied to such a red flag via email, typing part of her message in all caps, insisting that Hsu was "COMPLETELY legit"). It was also advised to better scrutinize its donors. According to the same LA Times report, former Clinton fundraiser David Rosen had pushed for criminal background checks by campaigns. "Mistakes happen," he said, "when people are overwhelmed, under-resourced and undertrained."

Mistakes happen, yes, but a policy of looking the other way raises more dough.

Why in the world would Bill Clinton shower such public attention and praise upon an unknown quantity like Norman Hsu at that speech quoted above? Beyond Hsu's utility to the Clinton campaign, he was bankrolling some of the former president's pet projects as well. The Chronicle of Philanthropy reports that Hsu donated $75,000 to the Clinton School of Public Service at the University of Arkansas (the school will now be returning the money). That caused the Hsu scandal to hit The Chronicle of Higher Education, too. And while some supporters of Senator Clinton's presidential bid insist that the Clinton organization's fundraising missteps should not be spoken of on the left, lest we repeat GOP talking points, it is relevant to note that neither of those esteemed academic journals are right-wing newsletters

The Hsu scandal also enters into public discussion of an important priority of much of the left: campaign finance reform. The message of hush up, buck up and shut up from Clinton partisans essentially asks us to put that goal aside for the rest of the '08 campaign and, indeed, for the next eight years.

Once again, a politician confronts us with the mantra of "do as I say, not as I do," because although it doesn't want us talking about it, the Clinton campaign issues "talking points" to its own mouthpieces to try to spin the story away.

The Internal Campaign Memo

Newsweek investigative reporters Michael Isikoff, Mark Hosenball and Evan Thomas published parts of an internal campaign memo with "talking points" that had been sent to Clinton "surrogates" (one of whom leaked the document to the reporters; there is apparently dissent within the machine, too): "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 Newsweekb by a Clinton supporter who didn't want to be identified revealing internal campaign communications."

Got it? Don't mention the $850,000 that Hsu bundled for Clinton in the first half of 2007, but by all means whack Senator Barack Obama's receipt of a relatively meager $7,000 back in 2005. Clinton communications director Howard Wolfson and spokesman Phil Singer, the magazine reported, were the ventriloquists behind the "talking points."

Interestingly, Obama's campaign gave that seven grand to charity (which was the Clinton campaign's first response regarding $23,000 that Hsu personally gave to its organizations). But when the story grew so large that the Clinton shop decided to cast off the ballast of almost a million dollars, those funds would not go to the needy, but, rather, directly back to 260 donors that Hsu had collected from.

The hypocrisy rises to the level of poetry in that Clinton, in a sense, might really believe that "Obama made me do it." Obama had bested Clinton in fundraising for the first half of 2007 ($58 million to $53 million) and, with more than a quarter million donors averaging $224 apiece, Obama may well widen the gap in the third quarter Federal Elections Commission (FEC) reports due October 15. Another loss in the Q3 "money primary" to Obama, and the hissing sound this time will be the air beginning to seep from the Clinton monster truck tires.

That fiscal reality provides important context to the motives behind Clinton's returning the Hsu bundled donations to sender rather than continuing to give the money to charity. The fix is cosmetic and deceptive. Indeed, Clinton admitted to the Associated Press that she'd welcome most of that $850,000 to be donated right back to her: "I believe that the vast majority of those 200-plus donors are perfectly capable of making up their own minds about what they will or won't do going forward."

In the extremely important money primary, the maneuver opens the possibility of a kind of laundering of money that was already reported by Clinton in previous quarters to be counted again, anew, in the upcoming third quarter, artificially raising her third quarter take. But while that almost million dollars, if re-deposited, may or may not make the difference in the fundraising war, the Clinton campaign (that some fawning pundits have characterized as "flawless" and "mistake free") has just inadvertently given the Hsu story another set of legs. It's as if the Clinton organization is now tossing landmines ahead on the very path it must walk next.

And so beginning on October 15, news organizations will be putting a magnifying glass to Clinton's Q3 FEC report to find out how much of that Hsu-bundled money is being re-donated in a manner that artificially boosts the campaign's claims to fundraising superiority. That will bring another round of news about the scandal that will not die.

"He Never Said No"

The New York Times reported that Hsu "was desperate for invitations to glitzy Democratic party galas in California and private political dinners in New York." Hsu seemed "almost astonished to be posting for pictures with former President Bill Clinton at Chelsea Piers and Senator Hillary Rodham Clinton at a rally in San Francisco."

Referring to Hsu as "a compulsive name dropper" that would snag elusive reservations at chic Manhattan restaurants for Clinton campaign staffers, the portrait emerges of a loose cannon on the deck of the USS Clinton that may yet take high-level campaign staffers down with him. "He spent money, he never said no," Clinton fundraiser John A. Catsimatidis told the Times.

That sentence--"he spent money, he never said no"--provides a worrisome hint of the probable spin-off scandals to come. Hsu had already donated the maximum allowed by law to Clinton's US Senate campaign and thus could not legally spend any more of his own money that year. Any Clinton staffer that was party to such lawbreaking may soon go down with him, as the judicial and media scrutiny heightens.

In Hsu's case, he seemed to be using the status he gained at the right hand of the Clintons to work his game on others. The Times reported that one Hsu investor was referred to him as "this big businessman who was a big friend of Hillary Clinton," and that Hsu encouraged investors to send campaign donations as "good for business." The Times quotes a prominent Clinton donor as saying that Hsu "went from a nobody to a player. And if Hillary was elected he would go from a player to a well-connected star in Democratic business circles."

Norman Hsu turns out not to be the hapless innocent that looks up at us with puppy eyes from his mug shots. He is a slash-and-burn player that sought a position on a team that encouraged him, and others like him, to pursue a charred earth fundraising policy. Hsu found in the Clinton campaign a perfect headquarters for unethical money handling, where he could, and did, blend in perfectly without seeming out of place.

Hsu's Fundraising Methods

Some right-wing bloggers have seized upon Hsu's Chinese ethnicity to suggest a nefarious plot by foreign interests or governments to buy influence in a possible Clinton administration (a line that a Congressional investigation of the 1996 Clinton fundraising scandal pursued after the Trie donations came to light). But no evidence whatsoever has so far pointed to that. Others have speculated that Hsu may have been under the impression (illusory or not) that if he topped the Clinton fundraising team in "sales," he might parlay that into a presidential pardon for his past sins. Yet the early evidence has an even more tangled web unraveling in full public view.

The pattern that instead emerges suggests that Hsu basked in the light of the Clintons and other politicians to gain the confidence of others he met in the campaign's orbit in order to run multiple investment con schemes with their money.

The Washington Post reports that Hsu raised the eye-popping sum of $850,000 "in just eight months" with "donors that included wealthy investors in his apparel ventures, hotel shopkeepers, a 96-year-old in a Florida retirement home and an auto-body worker who mistakenly thought he would get a tax break for his political generosity."

The Clinton campaign hasn't disclosed the identities of the 260 donors it says were bundled by Hsu (and that, too, reflects sloppy politics: it merely postpones the escalation of the story's news value to when the October 15 FEC report, which requires candidates to itemize returned donations, can be perused by news organizations). But the Post investigative team was able to identify "nearly 100" of those bundled by Hsu, noting that some "had trouble explaining why they gave the funds to Clinton or could not recall the circumstances in which they met Hsu."
Jack Cassidy, a California businessman, told the Post that he informed the Clinton campaign and the FBI that Hsu might be part of an "illegal Ponzi scheme" and that Hsu was using the Clinton campaign to run his game, "to gain the confidence of the people he was meeting" through it: "If you are opening a hamburger stand, you want to put a set of golden arches outside Hsu was using Hillary Clinton as his golden arches."

One investor that complained of being defrauded by Hsu told the newspaper: "Norman would make friends with one guy, and then move around to meet all this guy's friends, and soon they would all be his investors."

Some of Hsu's New York investors fear that he cheated them out of $40 million, according to another NY Times report. And the Los Angeles Times informs us that a $23 million lawsuit has been filed against Hsu in California for a similar bilking scheme. The complaint states that the plaintiff trusted Hsu with his money because, "prominent persons, including Sen. Hillary Clinton, New Mexico Gov. Bill Richardson, California Atty. Gen. Jerry Brown, national Democratic political advisor James Carville, film director Steven Spielberg, actor [Tobey] Maguire, grocery store magnate/billionaire Ron Burkle and others introduced and/or endorsed Hsu as a friend, colleague and trusted associate."

Simultaneously, Hsu would pressure his investors to donate to Clinton and other candidates, according to that same lawsuit. "He always used that phrase - 'favor' - in communications with the contribution demand," the plaintiff's attorney told Associated Press.

Hsu was very talented at the con, and his prominence as a "Hillraiser" brought him new investors. Once they had anted up, Hsu then got them to donate to Clinton and others by implying that the return on their investments would be at stake. The more money he raised for Clinton, the more access and attention was fawned upon him. And it was all going swimmingly until late August, when the Wall Street Journal first reported that Hsu had bundled tens of thousands of dollars in Clinton donations from a California family headed by a postal worker that earned just $49,000 a year. That report sent other major news organizations digging, which led to evidence that he had paid money to some of his bundled Clinton donors (illegal under federal elections law) and, finally, the startling revelation that Clinton's leading bundler was a fugitive from justice who had pled "no contest" in 1992 to defrauding investors.

When the jig was up in early September, Hsu turned himself into authorities in California, paid $2 million bail, but then skipped the next hearing. He was found in an Amtrak sleeping car crossing Colorado, in a pharmaceutical haze and an apparent suicide attempt. Bail, after first being raised to $5 million, was then revoked, and he awaits his many upcoming days in court from jail.

Was the Clinton campaign so desperate to catch up with Obama's fundraising success that it ignored clear early warning signs about the bundler in their midst? It wouldn't be the only example of how the pressures of raising tens of millions of dollars have compromised the Senator: in stark contrast to rivals Obama and John Edwards, who decline DC lobbyist or Political Action Committee (PAC) donations, Clinton is frenetically chasing such influence money. The Edwards campaign recently hit Clinton hard over a September fundraising event in which the campaign put lobbyists for companies seeking Homeland Security contracts together with key Congressional committee chairs; a thousand dollars or more to Clinton was the price tag of achieving such coveted access.

These compromises underscore what advocates of campaign finance and ethics reform have long asserted: That as long as electoral campaigning is dependent on wealthy donors, the system will continue to favor their policy choices over those that benefit the common good.

In the end, though, the fast and loose approach by the Clinton organization in hunting for those big checks comes down to one word: Negligence. And evidence mounts that the practice of looking the other way was not merely an oversight by low-level staffers. The reckless standard operating procedure came from the highest levels of the Clinton campaign.

The Negligence Is Top-Down

Signs are beginning to emerge that high level Clinton campaign staff ­including campaign manager Patti Solis Doyle--knew there were problems with Hsu before the story blew up on them, but did not take action. The LA Times reported that, from Hsu, "Solis Doyle got a coveted, and pricey, designer handbag -- a gift that made her so uncomfortable she returned it."

If a designer handbag made Solis Doyle--a top aid to Clinton since the office of the First Lady that has often been called "Hillary's alter-ego"--uncomfortable enough to return it, why did she not likewise question the $850,000 that Hsu was bundling into the campaign chest? The difference in value to a cash-thirsty campaign answers the query: a handbag does not a campaign make, but $850,000 pays for the entire media budget in various early primary states. Only after the Clinton shop learned that the FBI was on the trail of Hsu did it say it would divest from the money he raised. Solis Doyle's return of the handbag suggests that she knew something was wrong, but looked away at the larger corruption.

Solis Doyle's problems may now be larger than can fit in a handbag. The LA Times report locates her as the recipient of Hsu's largesse in November 2006, after Senator Clinton won reelection in New York, when Solis Doyle plus "two junior staffers and a New York-based fundraiser" were treated to a "post-victory trip to Las Vegas" by Hsu, with rooms at the Mandalay Bay hotel: "While at the Mandalay Bay, Hsu took at least some of his guests to a favorite bar, Red Square. It features a huge statue of a decapitated Lenin at the entrance, and the top of the bar is sheathed in ice to maintain the chill of the caviar and exclusive vodkas Clinton aides believed Hsu had gotten their rooms on a complimentary basis because he was a frequent visitor to Mandalay Bay, the aides said."

That two junior staffers fell into that pit is not surprising, but Solis Doyle? If the Federal Elections Commission interprets Hsu's generosity to the campaign manager as an in-kind contribution from a donor that Solis Doyle already knew had donated the maximum allowable by law in 2006, the legal burden could also fall upon her. (That the 2006 election had already taken place doesn't serve as an excuse; federal limits on contributions apply specifically to the "calendar year.") It's not just the corruption of such game playing that offends; it is also the ineptitude. The campaign manager of the leading Democratic candidate for US president ought to know better than to have crossed that line. And if she's that foolhardy with her own reputation and adherence to the letter and spirit of the law, it's likely that the negligence pervades many other aspects of how the Clinton campaign, and its fundraising operation, is run.

Now that the investigative sharks of the news media smell blood in the water, the Clinton campaign will be subjected to a level of scrutiny it had gambled would not occur. The possibility of new scandals, involving other Clinton donors and fundraisers, is not hypothetical. In the wake of the Hsu case, another Clinton donor has been indicted. And the race is on to identify others with less than endearing histories. These are hot scoops for any investigative reporter because they stick to Clinton--the similar problems in the previous Clinton administration, and Bill Clinton's clear involvement with Norman Hsu, make them examples of a pattern, not just isolated errors--much more convincingly than to others without that history.

Add to the troubles ahead for those that need the Hsu story to quiet down is Hsu's hire of flamboyant defense attorney James Brosnahan, who wants to withdraw his client's 1992 "no contest" plea and try the case in court and in the media. Brosnahan (who the San Francisco Chronicle lists as number two on its "top ten lawyers" guide) has hinted at a DC Madam strategy, with veiled threats to bring down others if his client must also suffer. "Why didn't they go get him?" Brosnahan asked reporters, according to AP, then answering his own question. "He was contributing to California politicians."

Trouble in Paradise

The Clinton campaign's cultivated image as expert and monolithic also shows signs of becoming unglued in the wake of Hsu. The campaign's Iowa field director (who managed the victorious caucuses there of John Kerry in '04 and Al Gore in '00) mysteriously left the campaign shortly after the Hsu scandal broke and the campaign wouldn't tell reporters whether she had resigned or been fired. The leaking of the internal memo above may also indicate some discontent.

NBC's Andrea Mitchell went from gape-jawed praise of former president Bill Clinton's role in Senator Clinton's campaign to a public expression of worry in a matter of days as a result of the Hsu scandal. On September 5 Mitchell, on MSNBC, had lauded Bill Clinton as "a big asset to his wife's campaign." But days later, Mitchell--even as her husband, Federal Reserve Board chairman Alan Greenspan was releasing a book that praised Bill Clinton (praise that was later cited by Senator Clinton during an Iowa stump speech) - had this to say on the same channel: "Up until now, Bill Clinton has been a complete plus among Democratic primary voters for Hillary Clinton. But now, with the Norman Hsu money-raising controversy, for the first time there's a real concern in the Clinton camp that this is real baggage from the Clinton White House years. There's a lot of stress, a lot of damage control, a lot of finger pointing - and in fact, stress is so high that there was a shouting match observed among Clinton staffers in public last week."

The wheels are coming off the Clinton bandwagon, but so far imperceptibly to all but those paying very close attention. Most political reporters and pundits don't notice the wobble yet. They accept the conventional wisdom that the Clinton organization is marked by competence, that "Hillary, Inc." is a well-oiled political corporation. Enron, too, was once perceived as healthy. This is another case of nineties corporate and political values that cannot withstand the new levels of scrutiny made possible by the expansion of the Internet. Information is not as easily filtered as it was then. Back in 1997, according to the US Census, only 18 percent of US homes had Internet access, mainly via slow dial-up connections. By June 2007 more than 200,000 million Americans (69 percent) are online according to Nielsen/Net Ratings and it's that much harder for politicians to spin or sweep inconvenient facts under the campaign rug.

Clinton's fundraising problems and ethical lapses harm all aspects of her campaign, especially the matters that most concern voters. The Hsu scandal broke exactly when the Bush administration rolled out General George Petraeus to sell a continuation of the Iraq war to Congress and the American public. It was an hour when many looked to Clinton and her rivals, particularly those Democratic presidential candidates in the US Senate, to exercise more effective leadership to end that war. But the scandal paralyzed Clinton in the same way that 1990s troubles paralyzed the first Clinton White House from effective action on behalf of progressive agendas.

On September 12, Senator Clinton was so hell-bent on evading media questions about the Hsu case that some of her supporters manhandled a Newsday reporter to keep him from doing his job. The reporter, Glenn Thrush, posted the incident almost immediately to the newspaper's website, noting that, "Typically, the Secret Service allows credentialed journalists to question the senator as she heads to her car (she often refuses to talk) and today there was much to query her on: the Norman Hsu scandal, her tough talk to Gen. David Petraeus and Barack Obama's new position on Iraq."

These are just the earliest signs about how fundraising scandals drag on all aspects of a campaign (or a presidency). Hsu's contribution truly is the gift that keeps on taking. Clinton's Hsu problem (and the compounding troubles that grow out of it) can't be fairly blamed on a vast right-wing conspiracy nor on anyone other than those that, in their unquenchable thirst for campaign dollars, played fast and loose with the fundraising game, encouraged vertiginous competition among million-dollar bundlers and allowed an unvetted glommer like Norman Hsu into their inner circle based only on his ability to bring in the checks.

It may be too late for the Clinton campaign to recover and repair its flawed machine (and, regardless, it has telegraphed that it doesn't recognize its problem or the need to change course). But it is not too late for the other Democratic presidential candidates, the party's candidates for Senate, House, state and local offices, the press corps and rank-and-file citizens to learn those lessons and adjust accordingly.

To recklessly gamble that the scrutiny upon how campaigns are funded won't continue to intensify will be at the peril of what could be an historic landslide in November of '08, one that could rewrite the electoral map for decades to come. To risk all that in order to nostalgically fight the past political wars all over again (or to think they can be fought effectively without a break from nineties values) would be as self-destructive for the country as it would be for the Democratic Party. The alarm clock screams and will continue to ring. The wake-up call has arrived.