Associated Press | A financial adviser to celebrities including
Wesley Snipes and Sylvester Stallone was arrested Thursday on charges
that he carried out a $30 million fraud on his clients, using some of
their money to purchase a lavish Manhattan apartment. Kenneth Starr,
65, of Manhattan was charged with wire fraud, investment adviser fraud
and money laundering and was awaiting an initial court appearance in
federal court in Manhattan.

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

Lawyers for Starr and Stein did not immediately respond to telephone messages seeking comment.

The charges against Starr and Stein were announced in Manhattan by federal prosecutors, who scheduled a news conference for later Thursday.

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 borough president of Manhattan from 1978 through 1985, and was president of the New York City Council from 1986 through 1993.

A separate complaint filed in federal court by the Securities and Exchange Commission said Starr provides investment advisory services to more than 30 high net-worth clients. It said he provides services including accounting, tax preparation, business management, bill-paying and “concierge” services to a larger group of about 175 clients.

The SEC complaint said Starr and others have power of attorney or signatory authority enabling them to control many bank and investment accounts belonging to their clients.

As a result, it said, Starr was able to use some of his clients’ funds to purchase a luxury $7.6 million Manhattan apartment. The five-bedroom, six-and-a-half-bath apartment includes a recreation room with a wet bar, a 32-foot granite lap pool and a 1,500 square-foot garden.

IRS Agent Robert Beranger said in a criminal complaint filed in Manhattan federal court that Starr told authorities that loans and fees were made to Stein in connection with his work as a “placement agent” for investments.

Some of that money was used to pay for the “extravagant personal expenses” of Stein, including hundreds of thousands of dollars to pay American Express bills, along with money for rent, doctors’ bills, pharmacy expenses and restaurant bills, Beranger said.

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.

He said Stein shielded the money from the IRS by created a shell corporation to move money through, by rapidly moving money between multiple bank accounts and by using third parties’ credit cards to pay his own personal expenses. Beranger said Stein lied about these matters twice.

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

Beranger described Starr as having carried out a Ponzi-like scheme from January 2008 through April by persuading clients to make safe investments with him and then diverting the monies to himself and to risky investments in which he, his wife and his close associates, including Stein, held undisclosed financial interests.

“He used his access to famous and powerful clients to burnish an image of trustworthiness, leading his clients to entrust him with management and control of their financial affairs,” Beranger wrote. “In some cases, he assumed total control over his clients’ financial lives by collecting their earnings, investing their savings and paying their bills.”

Beranger said 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.

Clients cheated by Starr whose money troubles with him were described in the complaint included a woman who was a former hedge fund manager and well-known philanthropist, an actress who considered herself a longtime close friend to Starr, a former talent agency executive and his wife, an elderly heiress and a jeweler whose flagship store is located in Manhattan.

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, Beranger said.

The criminal complaint described how Starr developed a cozy relationship with his investors to gain trust before taking control of their finances. In one instance, it described how he told the jeweler that he had many sure deals that he only permitted his close friends to invest in.

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.