Some Oddities About Hsu's Ostensibly Unwitting Woodstock Backer

On Wednesday, we learned that a major backer of Norman Hsu's shadowy Democratic fundraising spree appeared to be Joel Rosenman, co-creator of Woodstock and currently head of a New York investment firm called Source Financing Investors.

Rosenman wrote to his investors on Monday to alert them that the $40 million the firm had invested with Mr. Hsu might not be recovered, what with Hsu's legal troubles and the fact that the checks he was sending Rosenman had started to bounce.  According to The Wall Street Journal, Rosenman stated in the investor letter that he first became suspicious of Hsu over the three prior weeks, as the details of his suspicious political activity and fugitive status came to light.

I'm not going to say it's impossible that Rosenman and the other principals at Source Financing had no prior suspicions of Hsu, but it seems somewhat improbable that any but the least diligent investment manager could carry on a 5-year professional relationship with the man and execute dozens of deals for at least tens of millions of dollars (at least some of which belonged to Source's outside investors), all the while doing such scant due diligence and asking so few questions as to fail to realize that Hsu's business interests were little more than shell companies.  I can attest from recent experience that this isn't difficult to figure out.

True, I happen to live just 0.9 miles from Hsu's cluster of apparently bogus business addresses, so it was easy for me to stroll glibly across town and hunt for Hsu's offices myself.  The trip from Source Financing Investors' office, on the other hand, would have been a solid mile.

If this style of laid back investing appeals to you, you may be wondering how you too can invest some cash with Source Financing.  Unfortunately for you, it doesn't seem so easy.  While the web domain sourcefinancing.com is registered to Joel Rosenman (and earlier investment vehicle JR Capital, which he co-founded in 1967 with Woodstock co-creator John Roberts), all you'll find there is one of those web hosting placeholder pages.  While the State Department does acknowledge existence of Source Financing Investors, there doesn't seem to be much to it, other than its Madison Avenue address.

All this is in stark contrast to the long-established JR Capital, which not only boasts an internet domain, but a working website.  By "working website" I of course mean "a splash page with 5 missing image files and a password prompt."  In fairness, there is an e-mail address, so if you're interested, you might want to drop them a line.  I don't know if anyone's receiving them, but a test message sent to the address didn't bounce.

Because of the password protection, there's not much else to glean from the JR Capital website.  Happily, courtesy of the Wayback Machine, we can be whisk ourselves back to a simpler time.  A time before the site's content was password protected (HT: LibertyPost).  The most recent unprotected site update was archived on - coincindentally and of no particular relevance to the matter at hand - my 29th birthday.  So let's fire up the Wayback Machine for 1/25/05.

Some of the image links are still broken, but from the ones that are in tact, it's clear we're not missing much.  There are only a few pages on the site and only one with any real content, which is the About Us page.  Here, we learn a handful of interesting things.

1. The firm's relationship with Norman Hsu's bogus clothing company Components, Ltd. began in 2002 (hence the 5-year professional relationship noted above).
2. The firm appears to have closed no real transactions with any legitimate counterparty (excluding consulting) in the last 7.
3. The most recent deal, executed in 2000 was a $12 million private placement with Idealab.  They were presumably part of the incubator's pre-IPO investor syndicate, most of whom lost their shirts when the IPO was scrapped later that year, leading to protracted investor lawsuits.
   More on this later.
4. The transaction preceding Idealab involved the "Sale of Carlton Stuart Corp. [sic] to United Technologies" in 1998.
5. It cost $3 million to produce Woodstock (that's just interesting trivia).
6. The firm has 5 principals: Josh Rosenman, Yau Cheng, Deborah Miller, George Saunders, and Daniel Frisch (as of the latest available page update on 6/12/04).

Finally armed with a bit of information, we're able to start jamming a few jaggy pieces together.

• The George Saunders they're referring to is presumably the same one who founded Carleton Stuart, since the firm's managerial CV boasts not only the "sale of Carlton Stuart [sic]" but "CEO of Carleton Stuart".  Two things are odd about this: 1) the typo and 2) the fact that Saunders died in 2001, but they were still listing him as one of the 5 principals nearly 3 years later.
• According to the Journal article, Hsu was introduced to Rosenman by Yau Cheng in 2000, Cheng having met Hsu "while working for an Internet company in 2000."  My guess is that internet company was Idealab, the one that cheesed off so many investors that year when their IPO became one of the first much-hyped internet bubble casualties, and apparently the closest Source Financing has come to making a sound investment in a decade.
• There seems to be very little information about Daniel Frisch, other than the fact that he and Rosenman play squash together (apparently quite well).
• Deborah Miller may be the same Deborah Miller who also goes by Deborah Miller-Zabel and is married to William Zabel.  We've got a few steps to take here, so stick with me.  New York-based Deborah Miller went to Wharton Business School and owns a business named Dewinden.  Deborah Miller and Dewinden have only ever been seen together one other time and it's been in the company of Mr. Zabel.  This is a tenuous linkage, but I suspect it's probably accurate.  If it is, then Deborah Miller-Zabel being a principal at Source Financing is interesting because William Zabel is a trustee at the New School University, a list that included Norman Hsu until he was hurriedly removed a couple weeks ago (here's the cached version showing Hsu and Zabel co-listed).

As for Mr. Rosenman himself, there are a few more dots that probably warrant tentative connecting at this point.  I suspect this is more likely than not coincidental, but Rosenman's identity as a co-creator of Woodstock is perhaps slightly more noteworthy, against the backdrop of the Norman Hsu scandal that funneled such bountiful riches into the pockets of so many dozens of Democratic (and one Republican) polticians.  A reader recently pointed me to the transcript of a recent Rush Limbaugh show that referenced a Des Moines Register article on the topic of a quizzical bit of legislative pork:

"A tax-cut group Tuesday took aim at a bill sponsored by Iowa Sen. Tom Harkin, questioning use of federal money for a Woodstock music festival museum, an online herbarium in New York, and a canoe-making program in Hawaii.  Those projects are among more than 1,000 so-called 'earmarks' in a spending bill overseen by [Harkin] chairman of an appropriations subcommittee.
...
Another earmark highlighted by Americans for Prosperity was $1 million for the Museum at Bethel Woods in New York, which according to its Web site seeks in 2008 to interpret the 1969 Woodstock Music and Arts Fair. The money was requested by two New York senators, Democrats Hillary Clinton and Charles Schumer." Then the Jawa Report on July 17th of this year: "Hillary/Schumer want $1 Million For Hippie Museum -- How many Troops will have to go without supplies, armor or food because Hillary and Schumer want to fund a church to hippies?"

Hillary's a Senator from the state where Woodstock was held and Harkin is the chairman of the relevant subcommittee, so it stands to reason that - were one to see spending $1 million in federal tax dollars on a hippie museum as a good idea - those two would likely be the ones to make it happen.  But it's worth pointing out that Clinton and Harkin ranked #1 and #4 (out of 83), respectively, among Norman Hsu's most lavishly endowed politicians.  Among all federal legislators, they were #1 and #2, taking in nearly a million dollars between them.

As for Rosenman's claim in his *oops* letter to Source Financing's investors that he only became suspicious of Hsu when he hit the national stage in recent weeks, that may prove to be the case.  But not only does that lack of earlier suspicion require 5 years' worth of stunning incuriosty about the shadowy custodian of tens of millions of Rosenman's investors' dollars, but it also requires not batting an eye at Hsu's sudden and superlative political fundraising activity beginning in late 2003.  Source Financing went into business with Hsu at least a year before he'd made a single political donation.  One would be forgiven for expecting Hsu's meteoric rise to celebrated heavyweight Democratic booster to give pause to those people who were throwing piles of money at a man they couldn't have known very well.

And we do know with relative certainty that Ronsenman was indeed aware of Hsu's political largesse.  According to a Daily News source, Hsu pressured Rosenman to join him in heaving cash at Senator Clinton, telling him "he'd consider it a 'great favor' if Rosenman filled Clinton's coffers."  The paper notes that "Federal records show Rosenman wrote six checks to Clinton campaigns worth $8,500 in total."

That's true.  But in keeping with the pattern by now familiar to anyone following this story, that sum was just the tip of the iceberg.  I reviewed those records too and found that not only did Rosenman shell out $8,500 to Hillary, but he (or Hsu) seems to have convinced Rosenman's partner Yau Cheng and his son and daughter to follow suit.  Between the four of them, they parted with more than $28,000 in less than 11 months in contributions made directly to Clinton.  What's more, some of these contributions fell in close proximity to some other instances of Hillary-bound generosity from Hsu associates, as previously documented.

Rosenman started off small, but after about a year, had adopted that signature Hsu benefaction whereby he and multiple family members were maxing out their donations to Clinton.  Also in keeping with the familial patterns we've seen before, Ned and Molly Rosenman list Source Financing Investors as their employer in the campaign finance disclosure documents.

Again, I think I'd take an even money bet that Rosenman and Source Financing Investors are victims in this scam (albeit, largely owing to an apparent refusal to do even a mote of due diligence legwork on their mysterious business partner), rather than co-conspirators in or even agenda-driven puppetmasters behind Hsu's political dealings.  But this scandal has a away of making a fool of anyone who expects it to be done getting weirder, so we may as well keep cranking away.

There's a bit more contribution data on the way, which I ought to have checked, formatted, and uploaded by the end of the weekend.  Pending verification, the newly found donations looks to boost the aggregate Hsu-connected total by roughly $150,000 (which would nudge him just past Abramoff).  For the time being, I'm not including the Rosenman or Cheng contributions in that total, despite those transactions being explicitly "Hsu-connected".  Unless and until we learn otherwise, this seems to be one of those rare occasions on which Hsu actually convinced someone to fork over their own money to Hillary.

If you stumble on any records, connections, news stories, or blog posts you think might help shed light on any aspect this fantastically convulated affair, drop me a line.  In the mean time, I'll leave you with this final miscellaneous oddity concerning Josh Rosenman and Source Financing Investors.  It's a message posted on a public mailing list archive, apparently by someone (or some bit of malware) named Gregorio, who (or which) has access to an e-mail account at JR Capital.  It's just text, but if you're not a fan of x-rated spam, it's probably not for you.

The oddity (beyond the subject matter of the post) stems from the fact that lewd spam accounts for fully 25% of the search results for the web domain of a successful investment firm that's been in business for 40 years.