SEC Charges Norman Hsu with a Ponzi Fraud

October 7, 2008 – 12:06 pm -

October 7, 2008

The SEC announced yesterday that it filed charges against Norman Hsu in connection with operating a 60 million dollar ponzi scheme. A ponzi scheme is organized much like a pyramid. The schemes promoter is paid by other investors below the promoter who in turn get paid by those below them and so on. Individuals invest in the scheme by the promises of high returns. Eventually the scheme fails as there are no new investors or the scheme is discovered by authorities.

The Ponzi scheme is named after Charles Ponzi, who in the early 19th century diverted funds of investors in a international currency arbitrage. The diverted funds were used to pay investors who withdrew funds that they thought were profits and to support Charles Ponzi’s lavish lifestyle. .

According to the SEC, Norman Hsu through his corporation Next Components informed investors that they could expect returns ranging from 14 to 24 percent every 70 to 130 days. Instead the SEC charged that Norman Hsu used the investor money to support a luxury Life style.

The Securities and Exchange Commission’s release is reprinted in its entirety below.

Washington, D.C., Oct. 6, 2008 — The Securities and Exchange Commission today charged Norman Hsu and his company Next Components with operating a $60 million Ponzi scheme that allegedly used investor funds to compensate sales agents, make political campaign contributions, and support Hsu’s luxurious lifestyle.

Hsu, a former resident of California and New York, is in federal custody awaiting trial on federal criminal charges of investment fraud and wire fraud in connection with his operation of the alleged nationwide Ponzi scheme.

“As alleged in our complaint, Hsu and his company used investor funds to make significant political contributions to prominent politicians,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “He allegedly then used the veneer of respectability created by his political connections to persuade his investors that the investments he offered were legitimate. This deception convinced investors to continue to invest with Hsu, even as he and his company allegedly siphoned away investor funds to pay for his own extravagant lifestyle and to finance a Ponzi scheme.”

Rosalind R. Tyson, Regional Director of the SEC’s Los Angeles Regional Office, added, “This case demonstrates that the Commission aggressively seeks out offering fraud, regardless of the social status of the perpetrator of the fraud. It also is a caution to investors that they need to be wary of relying too heavily on appearances when making investment decisions. The apparent sophistication of a deal or the person offering the deal is no substitute for old-fashioned issuer transparency and investor due diligence.”

According to the SEC’s complaint, filed in the federal district court for the Central District of California, Hsu presented himself as an international businessman with high-level contacts with overseas businesses, particularly in the Chinese apparel and technology industries. The SEC’s complaint alleges that from January 2003 through September 2007, Hsu told investors that Next Components would pool their funds to finance bridge loans negotiated by Hsu that would generate investor returns of 14 to 24 percent every 70 to 130 days.

The SEC alleges that Hsu and Next Components instead used new investor funds to pay “returns” to pre-existing investors, and misappropriated the remainder of investor funds to pay sales agent commissions, finance Hsu’s luxury living and entertainment expenses, and reimburse investors for political donations solicited by Hsu.

The complaint alleges that Next Components and Hsu violated the antifraud and registration provisions of the federal securities laws. The Commission seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties against the defendants.

The Commission acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

http://www.sec.gov/news/press/2008/2008-239.htm

The Law Office of Eric Norstedt, P.A. represents investors victimized by Investment Fraud. More information can be found at www.usinvestorlaw.com


Posted in Uncategorized | No Comments »

Post a Comment