''In light of recent events and allegations that Mr Norman Hsu engaged in an illegal investment scheme, we have decided out of an abundance of caution to return the money he raised for our campaign,'' spokesman Howard Wolfson said in a statement.
The campaign is refunding about 850,000 dollar to some 260 donors this week, Wolfson said.
The Washington Post characterized the refund as one of the largest in political history.
Hsu was convicted of fraud in 1992. He had evaded authorities for years, spending time in Asia before emerging in recent years in the United States as a generous donor to Democrats, including Clinton presidential rival Sen. Barack Obama of Illinois.
FBI agents arrested Hsu on federal charges of unlawful flight on Thursday evening at a Grand Junction, Colorado, hospital. He had failed to appear at a hearing in California on Wednesday.
''Hsu donated to numerous charities and more than two dozen candidates and committees. Despite conducting a thorough review of public records, our campaign, like these others, were unaware of Mr. Hsu's decade-plus-old warrant,'' Wolfson said.
Wolfson said the campaign was tightening its vetting procedures for fundraisers who solicit donations, including criminal background checks, to guard ''against this type of situation in the future.'' California Attorney General Jerry Brown's office said last week that Hsu would be returned to the state to face sentencing for his conviction arising from a business scheme that bilked about 20 investors of approximately 1 million dollar.
REUTERS BJR AS1015