He and a friend with a big trust fund, John Roberts, decided to pitch a situation comedy about a hapless duo who hatched a new business plan every week. Looking for material, they placed an ad in The Wall Street Journal and New York Times that said: "Young Men With Unlimited Capital looking for interesting, legitimate, investment opportunities and business propositions."
The responses -- thousands of them -- inspired them to become venture capitalists instead of screenwriters, according to a book by Messrs. Rosenman and Roberts, "Young Men With Unlimited Capital."
One of the ideas was for a three-day concert. Together with two others, the pair raised money, produced and organized Woodstock in 1969.
That same year, Mr. Hsu, who grew up in Hong Kong, received a Social Security card and enrolled in the University of California.
Woodstock's creators, meanwhile, struggled with enormous debt and bad publicity, according to the account by Messrs. Rosenman and Roberts. They opened and then sold a recording studio in Manhattan. Eventually, they opened an investment firm in New York called JR Capital. Mr. Rosenman co-produced Woodstock '94, a 25th-anniversary reprise of the first iconic event.
In an interview with the Daily Princetonian in 2001, Mr. Rosenman said he examines a handful of business projects every week. "I am still doing the same thing as in 1968," he said.
Mr. Rosenman's partner, Ms. Cheng, met Mr. Hsu while working for an Internet company in 2000. She began investing in one of his businesses and made a profit, according to someone familiar with the matter. In 2002, she joined JR Capital and introduced Mr. Rosenman to Mr. Hsu. That year, Mr. Rosenman invested and also made a profit. He began telling friends and relatives about the investment opportunity.
Mr. Rosenman described the deal in a pitch letter he provided to prospective investors for Source Financing Investors, which he launched in 2005. The investment pool would "lend to U.S. private label designers that needed interim financing to fill orders for a select group of well-known, high-end U.S. apparel retailers." Since 2001, he writes, "the return of these short-term (typically 4½ months) loans has been no less than 40%."
In a "step-by-step" outline of a typical transaction prepared for investors, Source Financing describes the way a deal worked with Mr. Hsu. Source Financing would agree to provide bridge loans for seasonal high-ticket, high-quality retail goods made in China for exclusive brand names, according to investors. Mr. Hsu told the company that he would obtain from Chinese manufacturers a price quote for apparel production. He would then add a mark-up and give the quote to a high-end buyer in the U.S.
If the U.S. buyer accepted, according to the outline, Source Financing would transfer by wire what Mr. Hsu said was 80% of the necessary loan, with Mr. Hsu saying he would provide the other 20% himself. Mr. Hsu told the investors he would then receive a letter of credit from a Chinese bank and that the manufacturer would ship the apparel to the U.S., where Mr. Hsu would deliver it to the merchant.
Mr. Hsu would give the investment firm a check, post-dated for 135 days beyond the wire transfer, for the amount of the loan plus profit. When the check matured, Source Financing would deposit it and allocate the money to investors. The company that would carry out these transactions, Mr. Hsu told investors, was Components Ltd., set up in 1997.
Some investors in Source Financing said they got involved through friends who knew Mr. Rosenman. Some did not know who Mr. Hsu was until news about him broke in late August.
On Friday, Aug. 31, Mr. Hsu appeared in court in Redwood City, Calif., to address the long-dormant grand theft charges. His case, and his $2 million bail bond, was front-page news across the country. In recent days, some media reports have raised questions about political contributions that appeared to be linked to Components Ltd. and Mr. Hsu.
On Monday, Sept. 3, Labor Day, Mr. Rosenman and Ms. Cheng talked to Mr. Hsu to find out about the status of their investments, they said in a letter to investors dated the next day.
They said that Mr. Hsu had vowed that he would deal with their orders personally, the letter said. "He expects substantial new orders this season," it read. "Because his personal schedule has become so hectic," it added, he may need up to five days beyond his promised target to finish an order. After consulting with advisers, they decided to give him time to perform.
The day after that letter was drafted, Wednesday, Sept. 5, Mr. Hsu skipped his next court hearing in California and went on the run from the law, via an eastbound Amtrak train. He was arrested the next day in a hospital in Grand Junction, Colo., where he was taken off the train after passengers reported he was ill.
In a letter this Monday, Mr. Rosenman told investors that the 37 outstanding deals with Components Ltd. are set to mature "over the next four months." But he indicated that was not likely. He said he had deposited two checks from Components that "matured Sept. 7." He was informed by the banks that there were insufficient funds.
"This development, coupled with recent revelations," he wrote, "led us to believe that payments due on our recent transactions with Components and Hsu may not be made."
Write to Ianthe Jeanne Dugan at ianthe.dugan@wsj.com and Brody Mullins at brody.mullins@wsj.com |
