Celebrity Financial Advisor Charged with Fraud

Manhattan- Kenneth Starr, a celebrity financial adviser to stars including actors Wesley Snipes and Sly Stallone, was charged today with carrying out a massive $30 million fraud on his clients -- then spending the money on a luxury apartment and jewelry, federal prosecutors said.

Starr, head of the Manhattan-based Starr and Co., was charged with wire fraud, fraud by an investment advisor, money laundering, making false statements to the IRS and lying to federal agents.

Starr is accused of promising his clients that their money would be invested in "sure deals" -- but instead steered the cash to himself and his associates in "risky" investments, according to the 37-page indictment unsealed by the Manhattan US Attorney's Office.

His associates included Andrew Stein, a one-time mayoral hopeful who had served as Manhattan borough president.

Starr's stripper wife, Diana Passage, was also implicated in the scheme -- accused by the feds of operating a company named Colcave, LLC. The feds said the company was a place were Starr commonly transferred money to.

Starr had "direct control" to his clients' personal bank accounts and routinely made unauthorized transfers, the feds said.

Lawyers for Starr and Stein did not immediately return calls seeking comment.

When a client made a demand for payment for a return on an investment, Starr took the money from one account to another in what the feds said was a scam "characteristic of a Ponzi scheme."

According to a separate SEC complaint also filed today, Starr and others had power of attorney, or signatory authority, that enabled them to control many bank and investment accounts belonging to their clients.

As a result, Starr was able to use some of his clients’ funds to purchase a posh $7.6 million East Side apartment. The five-bedroom apartment includes a rec room with a wet bar, a 32-foot granite lap pool and a 1,500 square-foot garden.

He also splurged on a $32,000 wedding band and a $13,000 pair of diamond earrings, according to the complaint.

Starr allegedly misappropriated about $1.7 million from one client over several dates between August 2009 and November 2009, including about $1 million from an account for a charity run by that investor, according to the SEC.

He also allegedly tried to withdraw another $750,000 from that client's account in April, but was unable to after the investor's bank alerted the investor.

None of the clients who were defrauded in the scheme were named in the criminal complaint.

In its lawsuit, the SEC alleged that Starr's company provides services to more than 30 high-net-worth individuals -- "many of whom are socialites or luminaries in the entertainment and business worlds." The company has assets under management in excess of $700 million.

In 2008, Starr testified 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, but was cleared on fraud and conspiracy charges.

Source: NY Post