Newsmaker

Celebrities' money guru charged in Ponzi scheme

(Agencies)
Updated: 2010-05-28 09:52

NEW YORK -- Prosecutors on Thursday charged a financial adviser who has worked for Wesley Snipes, Sylvester Stallone and Martin Scorsese with stealing $30 million from clients and accused a former city council president of lying about his own finances during the probe.

Kenneth Starr, 66, of Manhattan was ordered held without bail on charges of wire fraud, investment adviser fraud and money laundering after a prosecutor said Starr hid behind coats in a closet at his home when agents came to arrest him, forcing them to yank him out by the collar.

Also arrested in the probe was former New York City Council President Andrew Stein, 65, who was charged with making false statements in a filing with the Internal Revenue Service and making false statements to a federal officer.

US Attorney Preet Bharara said at a news conference that Starr stole money after gaining the trust of wealthy and influential clients and sometimes controlling their finances.

"He made it a point to seem like it was a very exclusive thing, creating a mystique about what it means to be a client of Mr. Starr," Bharara said.

There's no indication Snipes or Stallone were victims. An IRS criminal complaint said cheated clients included a former hedge fund manager and well-known philanthropist, an actress who was a longtime friend of Starr's, a former talent agency executive and his wife, an heiress, and a prominent jeweler with a flagship Manhattan store. They were not identified by name.

The jeweler at one point learned some of his money was invested with a company owned in part by a retired prominent basketball player in Georgia, IRS agent Robert Beranger said in a complaint.

Close associates who benefited from Starr's schemes included his son, a former national official of a major political party, Stein and a partner at a prominent national law firm, Beranger said. However, Stein was not charged in connection with Starr's alleged fraud, Bharara said.

Starr's lawyer, Josh Klein, told US Magistrate Judge Debra C. Freeman that his client's $7.6 million Manhattan apartment was not bought with investors' money. The five-bedroom, six-and-a-half-bath apartment includes a 32-foot (9.75-meter) granite lap pool and a 1,500-square-foot (139-square-meter) garden.

A general view of the building where Kenneth Starr resides in New York May 27, 2010. [Agencies]

Klein said Starr did not know who was banging on his door when agents arrived.

"Knocking consisted of people smashing or very loudly banging. He's petrified. He hid in the closet and put some clothes over his head," Klein said, though he added that Starr cooperated fully after his arrest.

At one point, Starr insisted on speaking, saying: "I've always been an extremely law-abiding person. ... I would never flee. ... I believe in the law. ... There would be no reason for me to go anywhere. There is no place for me to go."

Assistant US Attorney William J. Harrington successfully argued that Starr's behavior was that of a man who would flee, especially since millions of dollars are missing and federal sentencing guidelines would call for 25 years in prison if he is convicted.

"As the investigation goes on, it's very likely we'll identify additional victims. It's very unlikely we've identified all the victims," Harrington said.

Stein's lawyer, Andrew Maloney, portrayed his client as extremely cooperative with investigators at his initial court appearance, where he was freed on $250,000 bail.

"Mr. Stein may have been a victim as much as anyone else," Maloney said. Outside court, Stein spoke confidently that "it will be cleared up."

In court, Harrington said Stein's assets were "in shambles," with large debts owed to the IRS and no real source of income, even as he continues "spending a great deal of money beyond his means." If convicted, Stein faces up to eight years in prison.