Financial Adviser to the Stars Indicted for $30 Million Fraud, Arrested Hiding in Closet
By DNAinfo Staff on May 27, 2010 10:15am |
By Shayna Jacobs and Nicole Bode
MANHATTAN — A financial adviser to the stars and a former Manhattan borough president were indicted Thursday for allegedly ripping off celebrity clients to the tune of $30 million, federal authorities said.
Kenneth Starr, head of the investment company Starr & Co., was arrested by federal authorities Thursday morning. FBI agents found him hiding among clothes in his closet, it was revealed at his arraignment in Manhattan Federal Court.
Federal judge Debra Freeman denied Starr bail, arguing that his attempt to hide from federal agents made him a flight risk.
"Maybe it's an ostrich putting his head in the sand but it certainly looks like someone trying to hide from law enforcement and on that basis I'm ordering detainment," Freeman said.
Starr requested an appeal to bail Thursday evening. Earlier at his arraignment, he'd argued that he had not understood it was the police at the door when they started banging on it in the morning, and insisted that he was not a flight risk.
"I believe in the law. I would never flee. My children are here. My wife is here. My family is here," Starr said at his arraignment. "There would be no reason in the world for me to go anywhere because everyone I know and care about is in this state."
Starr's second request for bail was denied, but the judge said he would reconsider if his lawyer submits a written application for bail.
Starr was indicted on three fraud-related charges, including wire fraud and money laundering, both of which come with maximum penalties of 20 years in prison.
Starr's co-defendant, Andrew Stein, spent decades in New York politics, including a stint as a New York State Assemblyman, a City Councilman, Manhattan Borough President and a failed 1993 bid for Mayor.
Stein was charged with making false statements to the IRS and a federal officer.
Starr's clients have included Annie Liebovitz, Martin Scorsese, Sylvester Stallone and Wesley Snipes. It was unclear whether any of those clients were among the victims of the alleged Ponzi scam, but the Daily Beast quoted sources close to Uman Thurman who said she was Client No. 2 in the indictment.
Client No. 3, identified in the complaint as the former head of a talent agency was identified by the Daily Beast as Jim Wiatt, the former CEO of William Morris.
Another high-profile client caught up in Starr's net was Jacob the Jeweler, a famous purveyor of bling who went to federal prison on drug charges in 2008.
So was 100-year-old heiress Rachel "Bunny" Mellon, a privacy-hungry philanthropist and friend of Jaqueline Kennedy who reportedly helped fund John Edwards' presidential run and whose donations may have bankrolled Edwards' mistress.
"All I can say is Mrs. Mellon ... is just shocked that there might be some allegations about Mr. Starr, to whom she has given full authority over her assets," said Mellon's lawyer, Alexander Forger.
"She has known Mr. Starr for many many years. We have no idea at the moment what exposure she has to this," Forger added.
Starr allegedly wooed and then pocketed funds from at least a dozen high-profile clients, using the funds from one to pay back others who started to demand returns on their investments, the complaint says.
Starr is charged with sharing the ill-gotten gains with associates including his son and his wife, former Scores stripper and pole dancer Diane Passage.
Passage, who runs Pole Superstar, a group promoting pole dancing as a fitness activity, organized a dance competition at the Highline Ballroom in Chelsea last October where celebrity judges like actor Jason Patric awarded $10,000 to the best pole dancer.
She allegedly milked her husband's scam for access to a series of jobs, including a 1-year, $150,000 consultant position at the music label Glassnote. Under the terms of the hire, Passage had "no real responsibility and showed up once per month," the complaint said.
Passage also piggybacked on another investment, claiming she was helping legendary Scarface producer Marty Bregman produce the feature film "Desert Rose," an adaptation of a book about an aging Las Vegas showgirl, the complaint says.
A woman who answered the phone at Bregman Productions said she had no idea about the allegations.
Another company Starr diverted his clients' funds toward was Sundown Hills LLC, a business in northern Georgia affiliated with a "retired prominent basketball player." The complaint says the basketball player was the signatory on Sundown's January bankruptcy filings.
Those documents, available at the Georgia Northern Bankruptcy court, were signed by a Julius W. Erving — likely the legendary basketball player known as Dr. J, one of the highest scorers in pro-basketball history. The complaint says that Starr was close friends with the basketball player.
The complaint also alleges that 'Associate No. 3,' a "former national official of a major political party," and Associate No. 4, a "partner at a major political law firm" were involved in the fraud.
Prosecutors said Starr plunked down $7.5 million of his clients' money on April 16 for a lavish Upper East Side Condo, prosecutors said in the complaint.
The 5-bedroom, 6.5 bath condo featured an indoor 32-foot lap pool, a rec room with a wet bar, and "spa like baths and walk in closets," the complaint says.
Passage refused to speak to reporters as she left the E. 74th Street apartment building Thursday afternoon.
Federal and state prosecutors spent years following the complicated web of financial misdeeds, in which the defendants allegedly formed a shell company called "Wind River LLC" which was allegedly used to launder $1.6 million in client funds that ended up paying Stein's bils, including a $151,000 summer rental home in Bridgehampton and $10,000 in checks to Stein's son, the complaint says.
Stein owed $2 million in 7 years worth of unpaid taxes to the IRS last December, the criminal complaint said. In addition, he repeatedly understated his income and used credit cards under other people's names to avoid scrutiny, the complaint said.
The scam came to light when independent investigations by the feds and by Manhattan prosecutors overlapped, leading both offices to consolidate charges in federal court, prosecutors said.
"The investigation in today's arrest has moved in great speed but there is still much we do not know." US Attorney Preet Bharara said at Thursday's joint press conference with Manhattan District Attorney Cy Vance, Jr..
The Securities and Exchange Commission, which filed a civil lawsuit against Starr and his wife on Thursday, froze the assets of both Starr and Stein, SEC regional director George Canellos said. The move affected twenty-three bank accounts.