Adviser to Stars Arrested in Alleged Ponzi Scheme Linked to Partner in Prominent Law Firm
Posted May 28, 2010 6:26 AM CST
By Debra Cassens Weiss
An adviser to Hollywood actors and Court TV founder Steven Brill has been accused of using investment money to live lavishly, while diverting control of some of the funds to a partner in a prominent law firm and a national political official.
Manhattan moneyman Kenneth I. Starr—no relation to the independent counsel-turned-law- and college dean—was hiding in a closet when federal agents arrested him on Thursday in the alleged $30 million Ponzi scheme, according to stories in the Wall Street Journal, the New York Times and Reuters. He was charged in a criminal complaint filed by the Manhattan U.S. Attorney and in a civil complaint filed by the Securities and Exchange Commission.
Starr is a graduate of Brooklyn Law School, according to the Wall Street Journal Law Blog, and he has an LL.M. in tax law from New York University Law School, according to an affidavit cited in the complaint (PDF posted by the Wall Street Journal Law Blog). He has a law license, but does not practice law.
The complaint claims Starr used clients’ money to buy himself a five-bedroom, 6 ½ bath New York City apartment, complete with a granite swimming pool and 1,500-square-foot garden, according to details in the Reuters story. The apartment is valued at $7.5 million.
The Times and Reuters cite an affidavit by an Internal Revenue Service agent that alleges Starr diverted money to other associates, or to investments they controlled. The associates included “a partner in a prominent national law firm” and “a former national official of a major political party.” Neither was identified.
Starr’s clients have included actors Wesley Snipes, Goldie Hawn and Sylvester Stallone; photographer Annie Leibovitz; directors Ron Howard and Martin Scorsese; and Brill, who founded the American Lawyer and Court TV. Brill told the Wall Street Journal he’s “done very well” with Starr. “Obviously, now I've got to take a second look," he said.
The affidavit alleged Starr represented investments as sure deals, and then diverted the investment money to himself, his close associates, or to risky investments in which he, his wife or his close associates held undisclosed financial interests. The law firm partner was identified as “Associate 4.”
The affidavit says one of Starr’s clients, a former hedge fund manager and prominent philanthropist, contacted her own lawyers when she learned that Starr had directed her bank to transfer $750,000 from her account to a trust account controlled by “Associate 4,” the law firm partner. A further review showed that a total of $2.2 million had been wired from the client’s account to the partner’s account, but only about $500,000 had been authorized.
Another client, an actress, learned from her bank that $1 million had been wired from her personal account to the law firm partner's trust account, the affidavit says. When she called the lawyer, he said that he believed the money belonged to Starr and angrily asserted that Starr “bungled me up on this.” Eventually, she got the money back, but it appears to have come from a transfer from the account of a different client of Starr’s, the affidavit says.
Starr is also accused of using client money to pay "extravagant personal expenses" of Andrew Stein, former president of the New York City Council and state assemblyman, the stories say. Stein was charged with lying to the Internal Revenue Service and the government, but prosecutors say he wasn’t aware of Starr’s fraud.
Starr is being held without bail. At a court hearing, he said he was "always a law-abiding citizen,” according to the Wall Street Journal.
Updated at 9:15 a.m. to include additional information from the Wall Street Journal Law Blog and the criminal complaint.