Hsu, Petters and Madoff. Guess Who's Free?

Remember Norman Hsu?

A year ago, he was in the news for operating “a large new Ponzi scheme” that allegedly defrauded investors out of at least $20 million and for making illegal campaign contributions to presumptive presidential nominee Sen. Hillary Clinton. Now — post Tom Petters and Bernie Madoff — he looks like a small-timer.

Hsu’s attorney had tried to get his fraud trial rescheduled from this week because of the risk a jury would use the verdict “to send a signal of disgust” with Bernard Madoff and the current state of economic affairs.

How fitting that Hsu connected himself to his, er, betters as a way of getting off. Old habits die hard.

Hsu's gambit wasn’t working, so last week, he dumped his court-appointed attorney for a new one, forcing a postponement of his trial to April 6. Petters is due in court June 9. Both men remain in jail —Hsu for more than a year already — while the biggest scamster of all just has to fend off the cameras when he takes a stroll through Manhattan, for the moment, a free man.

Hsu is on the poor, crazy end of the Ponzi continuum and Madoff at the rich, like-a-fox end, but they have one thing in common. They cultivated trust and then preyed on it.

Affinity fraud is the trusted man's crime. Unlike criminals who use violence and intimidation, the fraudster soothes and flatters his victims. He invites them into the circle, buys them lunch, shares a round of golf, goes to the same church.

And to really earn the victim’s confidence, the con man makes showy donations to charity.

Hsu’s tactic of funneling contributions to prominent politicos does not appear to have been connected to gaining political favors for himself. More likely, it afforded him the appearance of an insider status that added credibility to his investment scheme.

Petters in particular used charity to pump up his credibility with strangers and help quiet the concerns of people who knew him well. I’ve heard second-hand, through two reliable sources, about employees who were creeped out by Petters himself, but kept reassuring themselves he was alright because of his charitable involvement.

A little due diligence into his good works would have revealed that the foundation he set up in memory of his son fell far short of the Charities Review Council standards for non profits, which call for: “At least 70 percent of the organization’s annual expenses are for program activity and not more than 30 percent for management/general and fundraising combined.”

The John T. Petters Foundation raised $1.3 million in 2006, in the most recently available reporting year, and dispensed only $30k to $40k in scholarships as its program expenses. Of the foundation's other $741k in expenses, $579k was consumed by a high-profile gala.

Most of the contributions the party "raised" came from Petters employees, vendors, close friends and hedge fund managers who invested in Petters companies — all presumably donors who would give without consorting with the likes of headliners David Spade and Bill Cosby. Normally such galas are used to attract new donors and raise awareness for the cause.

In this case, the cause was the empire of Tom Petters.