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Money manager to stars accused of fraud

May 28, 2010|Reuters

Kenneth Starr, a New York investment adviser to celebrities such as movie director Martin Scorsese and actor Uma Thurman, was arrested by U.S. agents on Thursday on charges of running an alleged investment fraud of as much as $30 million, prosecutors said.

According to an affidavit filed in Manhattan federal court by an Internal Revenue Service agent, Starr ran a complex set of schemes involving his son, his wife, prominent New York Democratic Party politician Andrew Stein and "a former national official of a major political party," and "a partner at a prominent national law firm."

The criminal complaint charging Starr with wire fraud, investment adviser fraud and money laundering alludes to a "who's who" of wealthy New Yorkers as his clients or associates -- "an actress," "an elderly heiress," a "retired prominent basketball player" and a jeweler. None of them were identified in court documents.

Starr's son, the complaint said, would ferry checks to and from clients and Starr's associates, at one point traveling to Venezuela to transfer money on behalf of a client. The son has not been charged, but Stein is accused of lying to the IRS.

Starr, 65, is accused of bilking high net-worth investors through Starr Investment Advisers and Starr & Co. His wife, Diane Passage, and Colcave LLC, another firm Starr controlled, were also named as defendants in civil charges filed by the U.S. Securities and Exchange Commission.

Stein, a former president of the New York City Council, was charged with making false statements to the Internal Revenue Service and failing to disclose the existence of an entity called Wind River LLC, a shell company established in 2008 by an unidentified lawyer.

Starr stated that funds going to Wind River were loans to Stein for his work as a "placement agent" for investments, according to the affidavit.

Both Starr and Stein were arrested by IRS agents and were scheduled to make initial appearances in court on Thursday.

MILLION-DOLLAR LIVING

Since at least January 2008 through April 2010, "Starr marketed his services as an accountant and financial adviser to clients, gained control over millions of dollars belonging to his clients, and then misappropriated millions of dollars of his clients' assets for his own personal use," the criminal complaint said.

It said that included the purchase of a new luxury Manhattan apartment worth $7.5 million.

The SEC complaint said that last month Starr transferred $7 million from the accounts of three clients without their permission and used the money toward buying the apartment -- a townhouse condominium with five bedrooms, 6 1/2 bathrooms, a 32-foot granite lap pool and a 1,500-square-foot garden.

One of the investors complained about $1 million being transferred and demanded a refund, but Starr took $1 million from another client account to fulfill the request. The complaint cited other similar transfers since August 2009.

Starr's client list includes Scorsese, Thurman and celebrity photographer Annie Leibovitz, according to NBC News in New York.

The office of Manhattan U.S. Attorney Preet Bharara said Starr is accused of "allegedly perpetrating a $30 million fraud against his clients."

Prosecutors said the purported fraud was a Ponzi scheme in which corrupt money managers use funds from some clients to pay other clients, but the scheme collapses when they are eventually unable to meet redemptions.

A lawyer for Starr, Jonathan Bristol, could not immediately be reached for a comment. A lawyer for Stein, Andy Maloney, also could not immediately be reached to comment.

He is not the same Kenneth Starr who led the investigation of former President Bill Clinton regarding White House intern Monica Lewinsky.

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