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Adviser to Stars Named in Fraud
NY TIMES
By NELSON D. SCHWARTZ and JAMES BARRON
May 27, 2010
He was the moneyman to the stars, entrusted with managing fortunes for the likes of Wesley Snipes, Sylvester Stallone and Annie Leibovitz.
But when they arrested him on Thursday, federal prosecutors described him as something else: a mini-Madoff who diverted $30 million of his clients’ money to buy himself a sprawling Upper East Side condo complete with an indoor swimming pool and a 1,500-square-foot garden.
Much like Bernard L. Madoff, who is serving a 150-year sentence for bilking tens of billions of dollars from his closely knit network of clients, prosecutors say, Kenneth I. Starr of Manhattan cultivated business at charity events and lavish parties, bridging the worlds of New York and Hollywood to build a star-studded client list of socialites, financiers, philanthropists, A-list actors and Hall of Fame athletes.
Photographer Annie Leibovitz / Kenneth Starr
Mr. Starr, who is not related to the special prosecutor who investigated former President Bill Clinton, is said to have made access to his company seem exclusive, much as Mr. Madoff did.
“Starr had an M.O. that has become unfortunately familiar in recent times,” Preet Bharara, the United States attorney in Manhattan, said at a news conference on Thursday. “He used his access to famous and powerful clients to burnish an image of trustworthiness, inducing them to entrust him with management and control of their financial affairs.”
Kenneth Starr and his wife, Diana Passage at the
'Art****ers' Opening Night Party, February 2008
From the NY POST:
"Starr's stripper wife, Diana Passage, was also implicated in the scheme -- accused by the feds of operating a company named Colcave, LLC.
>> VIDEO: Diane Passage Pole Dancing
Diane Passage
A criminal complaint unsealed on Thursday in federal court in Manhattan listed charges of fraud and money laundering, in what prosecutors describe as a scheme that also touched Andrew J. Stein, a former City Council president, assemblyman and Manhattan borough president who left politics in 1994.
Mr. Stein was also arrested in connection with the case and charged with lying to tax authorities and the federal government.
Andrew Stein,
former President of the NYC Council
The complaint against Mr. Starr says that Mr. Stein used about $1.6 million from a company created through Mr. Starr to cover “extravagant personal expenses,” including hundreds of thousands of dollars in credit card bills.
However, prosecutors say that Mr. Stein, who gained a reputation as a corruption fighter while in office, was unaware of Mr. Starr’s fraud.
Lawyers for Mr. Starr and Mr. Stein did not respond to requests for comment.
The complaint did not name any victims of the suspected fraud, but it described some, including “an actress” and “an elderly heiress.”
The heiress named as a victim in the complaint is Rachel Lambert Mellon, 99, the widow of Paul Mellon, and a philanthropist, according to her lawyer Alexander Forger. Mr. Starr is accused of using $5.75 million of Mrs. Mellon’s money to help buy his condo.
“She was shocked by the disclosure that Mr. Starr has been accused of criminal activity, she has known him for many years and has trusted him, and committed to him the authority to manage her investments,” Mr. Forger said.
When Mr. Starr, 66, was arrested Thursday morning, he was found hiding in a closet, betrayed when agents spotted his shoes under the door.
According to the complaint, Mr. Starr sometimes raised money for dubious investments. In other cases, he simply diverted the money for his own personal use.
The complaint said Mr. Starr solicited money for investments that he said were safe, then channeled the money to either himself, his wife, his son or Mr. Stein and other associates, or put it into investments they controlled. These listed associates included “a former national official of a major political party” as well as “a partner in a prominent national law firm.”
An affidavit filed by an I.R.S. agent also indicated that Mr. Stein served as a “placement agent,” directing prospective clients to Mr. Starr.
One victim, an actress identified as Client 2 who was a close friend and client for more than a decade, first became concerned late last year when she noticed that her assets had mysteriously dropped with no explanation from Mr. Starr and that $1 million had been wired to an associate of Mr. Starr’s.
After the actress pressed Mr. Starr for months, the $1 million was returned — but Mr. Starr took that money from other accounts, including a former executive at a talent agency and his wife, the complaint said.
Another victim, described as Client 6, was identified by his own lawyer as Jacob Arabov, a Manhattan jeweler who had a reputation as the Harry Winston of the hip-hop world.
Mr. Arabov’s lawyer, Benjamin Brafman, issued a statement saying Mr. Arabov and his wife had been defrauded and “intend to pursue all legal remedies the law provides in an effort to recover their investments.”
The case of Mr. Arabov, in particular, sheds light on how Mr. Starr is suspected of having operated his business. The day after meeting Mr. Arabov at a charity event in May 2006, Mr. Starr went to Mr. Arabov’s store and purchased a $77,000 watch.
Mr. Starr and Mr. Arabov became close friends. In turn, Mr. Starr bought more baubles from Mr. Arabov, including a $70,000 diamond bracelet and a $32,000 wedding band.
Two years after they first met, Mr. Starr told Mr. Arabov “that he had many investments but he only permitted his close friends to invest in them,” according to the complaint.
Mr. Arabov, who served jail time on money laundering charges in a separate case, eventually invested nearly $14 million.
Mr. Starr was described by one client, who insisted on anonymity, as always eager to play up connections, whether they were from the world of Hollywood, athletics or finance. He kept a copy of Daily Variety prominently displayed at the entry to his offices at 850 Third Avenue, and a signed photo of Magic Johnson in his office.
References to an acquaintance, Peter G. Peterson, a founder of the Blackstone Group private equity fund, meanwhile, served to enhance Mr. Starr’s Wall Street credentials. Mr. Peterson did not return a call for comment.
In New York social and media circles, rumors flew all day Thursday of possible victims, echoing another element of the Madoff affair. Among the names mentioned was Annie Leibovitz, the noted photographer.
In a statement, Ms. Leibovitz said, “News of Ken Starr’s arrest does not come as a complete surprise to me, and I will follow this story with great interest. Ken Starr no longer represents me and has not for some time.”
Neither Mr. Starr nor Mr. Stein entered pleas at the initial hearing on Thursday. A federal magistrate judge, Debra Freeman, ordered Mr. Stein released on $250,000 bond. Mr. Stein indicated that he felt the charges against him would be “cleared up.”
At the government’s request, Judge Freeman ordered Mr. Starr held without bond, over objections from his lawyer.
Mr. Stein has been battling the I.R.S. for several years, according to the court documents, and he was accused of lying about the existence of the shell corporation, along with credit cards and a summer rental in the Hamptons.
The court documents said Mr. Stein had failed to pay $2.1 million in taxes on millions he earned as a consultant to several investment firms. The documents said that Mr. Stein had used the shell corporation to shield the money from the I.R.S.
Copyright 2010 The New York Times Company
Originally Posted by Fabrizio
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