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Financial adviser to stars charged with fraud

Kenneth Starr, a New York investment adviser to celebrities such as movie director Martin Scorcese and actor Uma Thurman, is arrested by U.S. agents on fraud charges.
/ Source: The Associated Press

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, 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.

U.S. Attorney Preet Bharara said at a news conference that Starr stole money in a Ponzi-like scheme from January 2008 through April 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, Scorsese 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 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 U.S. Magistrate Judge Debra C. Freeman that his client's $7.6 million Manhattan apartment was not bought with investors' money. The five-bedroom, 6 1/2-bath apartment includes a 32-foot granite lap pool and a 1,500 square-foot garden.

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 U.S. 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," Harrington said.

At another bail hearing before Judge John Koeltl late Thursday, Starr was again ordered detained, though Koeltl said he believes a bail package could be arranged in the future.

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.

Starr, an attorney, is head of New York-based Starr and Co. and Starr Investment Advisors LLC, which federal regulators said has accounts exceeding $700 million. Stein was a state assemblyman from 1969 through 1977, borough president of Manhattan from 1978 through 1985 and president of the New York City Council from 1986 through 1993.

Beranger said Stein had failed to pay $2.1 million in taxes between 2003 and 2009 for millions of dollars he was paid for working as a consultant for various investment companies.

Beranger said Stein used some of the proceeds of Starr's investment fraud to rent a luxury property in the posh Long Island community of Bridgehampton. The home, which cost $150,000 for the summer of 2008 alone, was rented by Stein each summer from 2007 through 2009, he said.

Starr testified in 2008 that he warned Snipes that he could get into trouble if he didn't pay his taxes.

Snipes, the star of the "Blade" movies, was convicted in Florida of three counts of failing to file tax returns. He was cleared on fraud and conspiracy charges.

Starr also once advised Stallone. Stallone later sued him, saying Starr advised him to keep his investment in Planet Hollywood restaurants even though Starr told others the chain was headed for bankruptcy. The suit was eventually settled.

Scorsese publicist Leslee Dart said Scorsese had not been a client of Starr's for some time. She declined to say when he was a client.