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United States of America v. Norman Hsu

February 17, 2012


The opinion of the court was delivered by: Gerard E. Lynch, Circuit Judge:


United States v. Hsu

Submitted: October 14, 2011

Before: WINTER, LYNCH, and CARNEY, Circuit Judges.

Defendant pled guilty to several counts of mail and wire fraud, was convicted by a jury of violations of federal campaign finance law, and was sentenced to 292 months in prison in the United States District Court for the Southern District of New York (Victor Marrero, J.). He appeals the resulting judgment of conviction on various grounds, including that the loss calculated for purposes of the Sentencing Guidelines improperly included promised returns on Hsu's victims' investments. We affirm the district court's loss calculation and hold that in the context of Ponzi schemes, intended loss can include reinvested earnings even when those "earnings" are the illusory predicate upon which the Ponzi scheme rests.


Defendant Norman Hsu was indicted on several counts each of (1) mail fraud, in violation of 18 U.S.C. § 1341; (2) wire fraud, in violation of 18 U.S.C. § 1343; and (3) campaign finance fraud, in violation of 2 U.S.C. §§ 441f and 437g(d)(1)(A). On May 7, 2009, in the United States District Court for the Southern District of New York (Victor Marrero, J.), Hsu pled guilty to the mail and wire fraud counts, all of which relate to a Ponzi scheme that defrauded victims of tens of millions of dollars from at least 2000 until 2007. He was then convicted after trial by jury of the campaign finance fraud counts. The district court sentenced Hsu to a guidelines sentence of 292 months in prison for both the Ponzi scheme and campaign finance crimes.

On appeal, Hsu challenges his guilty plea, conviction, and sentence. First, he argues that two of the ten counts to which he pled guilty were barred by the statute of limitations. Second, he challenges, for the first time on appeal, the admission of certain testimony regarding his Ponzi scheme and other criminal activity at his trial for violating campaign finance laws. Third, with respect to his sentence, Hsu argues that the district court (1) miscalculated the loss attributable to his Ponzi scheme; (2) failed to consider or appropriately weigh mitigating factors regarding, inter alia, his remorse and mental health; and (3) violated his Sixth Amendment rights by failing to appoint new counsel for sentencing.

We affirm the district court in all respects, and hold that (1) Hsu waived any statute of limitations challenge to the indictment by pleading guilty; (2) the district court's admission of the Ponzi scheme evidence was not plain error; (3) the district court did not err by calculating the intended loss amount under the Guidelines to include the loss of putative profits that victims reinvested in Hsu's Ponzi scheme; (4) the district court did not abuse its discretion when weighing the factors relevant to Hsu's sentence; and (5) under the circumstances of this case, the appointment of a new attorney for sentencing was not required.


I. Facts

In view of the defendant's convictions, we summarize the facts in the light most favorable to the government. United States v. Riggi, 541 F.3d 94, 96 (2d Cir. 2008). In or before 2000, Hsu devised a scheme whereby he invited investment in two entities that he purported to lead as Managing Director: Components Ltd. and Next Components Ltd. ("the Companies"). Hsu told investors that the Companies were engaged in the lucrative and low-risk business of providing short-term financing to small, high-end retail companies. In fact, there was no such business, as there were no such Companies: Hsu had invented them as the seemingly legitimate front for what turned out to be a multimillion-dollar Ponzi scheme.

Hsu's scheme was a variation on the familiar fraud. See Cunningham v. Brown, 265 U.S. 1, 7 (1924) (describing "the remarkable criminal financial career of Charles Ponzi"). In a typical Ponzi scheme, the schemer will "use[] the investments of new and existing customers to fund withdrawals of principal and supposed profit made by other customers." In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 232 (2d Cir. 2011) ("Madoff"). Hsu's variation was to provide investors with post-dated checks issued by one of the Companies in the amount of the investor's principal plus a "guaranteed" return on that investment, usually, on an annualized basis, of 60%. Sometimes investors would immediately cash the checks when they became due. Frequently, though, they would "roll over" their investment, thereby reinvesting the original principal plus accumulated gains in anticipation of further returns that would accrue during the next cycle. In 2005, Hsu's fraudulent activities expanded to the world of campaign finance, specifically in his connection to campaigns for candidates for the U.S. presidency and both houses of the U.S. Congress. Hsu became a "bundler" on behalf of several prominent candidates. A bundler is a donor who has given the maximum legal amount to a preferred candidate and convinces friends to do likewise, channeling the "bundle" of donations to the candidate's campaign. Hsu was a legitimate bundler in some instances, but in others he committed fraud by recruiting "straw donors," or individuals recruited to donate to campaigns only to be reimbursed by Hsu after the fact.

Hsu's investment and campaign schemes overlapped. He used political connections created by his campaign fundraising to create an appearance of legitimacy useful in recruiting victims to his investment scam, and used the illusions of successful investments to recruit his investors as campaign "donors." Six of the ten government witnesses testified that they both invested in Hsu's various deals and made donations to various candidates at Hsu's behest, and that Hsu subsequently reimbursed them for their donations.

Hsu's various schemes ended when he was arrested in September 2007 on an outstanding 1992 California warrant for absconding after pleading nolo contendere to charges in connection with an earlier, unrelated criminal scheme.*fn1 After his arrest was widely reported in the press, his investors rushed to cash the last postdated checks they had received, most of which were returned for insufficient funds. When the panic surrounding Hsu's arrest made it impossible to attract new capital infusions from current or future investors, the scheme collapsed. See Madoff, 654 F.3d at 232; see also Eberhard v. Marcu, 530 F.3d 122, 132 n.7 (2d Cir. 2008) (describing typical Ponzi scheme "where earlier investors are paid from the investments of more recent investors . . until the scheme ceases to attract new investors and the pyramid collapses"). The ensuing investigation revealed the extent of Hsu's scheme, including his various campaign finance frauds. The post-dated checks held by Hsu's victims totaled more than $100 million; the net losses to the investors as a class amounted to more than $20 million. II. District Court Proceedings

On December 9, 2008, Hsu was indicted on fourteen counts. Counts One through Five charged instances of mail fraud in connection with the Ponzi scheme, including one transaction that occurred in 2000. Counts Six through Ten charged wire fraud crimes in connection to the same scheme, including one count associated with the same 2000 transaction. Counts Eleven through Fourteen charged various violations of campaign finance laws.

On the eve of trial, Hsu pled guilty to the Ponzi scheme counts, without a plea agreement. Immediately following the allocution, the government asked the court to allow testimony from Hsu's Ponzi scheme victims at the trial of the remaining campaign finance fraud charges. Initially, the district court expressed some concern regarding this request, stating its "inclination . . . to say that if you have more than a couple [of witnesses], . . . it may be excessive. If all you are trying to bring in is [Federal Rule of Evidence] 404(b) evidence from victims, then more than a handful would not be necessary." Hsu's counsel agreed that "it is appropriate for evidence to come in as to the Ponzi scheme as it relates to why contributions were made and why contributions were made in a particular manner," but stated that he "would object to witnesses testifying that there was a Ponzi scheme going on and people were involved in it if it has no bearing on the issue of the political contributions." The government clarified that it would call four such witnesses. The government argued that this testimony was relevant to show motive, because the "straw donations were . . . orchestrated by the defendant so that people would invest in the Ponzi scheme." In other words, Hsu used his campaign activities to entice investors to participate in his scheme. Hsu did not ...

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