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Financial Adviser to Celebs Indicted

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A well-known investment adviser and a former high-ranking official in city government have been arrested and charged by federal prosecutors.

Kenneth Starr (no relation to Whitewater Special Prosecutor Kenneth Starr) allegedly defrauded his clients to the tune of $30 million. It's reported his clients include Annie Leibowitz, Uma Thurman and Martin Scorsese among others.

Also charged was Andrew Stein, former president of the New York City Council and a former state assemblyman. He is charged with tax evasion and lying to federal authorities.

A criminal complaint unsealed Thursday describes how Starr, beginning in 2008, solicited investments from his clients, promising big returns. The complaint says that, in fact, Starr then diverted the money he received to accounts held by his wife, Diane Passage, a VP at Glassnote Records and a former pole dancer. Also implicated in the ponzi scheme are his son, described as a “former national official of a major political party” and “a partner at a prominent national law firm.”

The complaint states that in cases where Starr had direct control of client bank accounts, he allegedly made funds transfers to himself and/or his associates without authorization.

In one instance, the complaint described a transfer last month of more than $5 million without authorization. The complaint says the funds belonged to a nearly 100-year-old heiress. The money allegedly was used to helped Starr buy a $7.5-million Upper East Side apartment with a 32-foot lap pool, a recreation room, as well as a 1,500-square foot garden.

WNYC learned that the heiress is most likely socialite Rachel Lambert Mellon after speaking to her long-time attorney, Alexander Forger. Mellon, also known as “Bunny,” was wife of the late philanthropist Paul Mellon, who was the son of Andrew Mellon.

Forger said, “She is absolutely shocked about the revelation that there may be some criminal activity involving Ken Starr, whom she has known for many years and has always had the utmost confidence and trust in him, and he has had her investment authority for many years.” Forger said it is unclear what, if any, money Mellon has lost.

Starr faces three criminal counts, including fraud by an investment adviser and money laundering. The Securities and Exchange Commission is also seeking to freeze his assets.

Stein is charged with withholding more than $2 million he owed in taxes to the IRS between 2003 and 2009. The criminal complaint says Starr helped Stein evade taxes by setting up Wind River LLC, of which Stein was the "managing member." Wind River's expenditures, obtained by prosecutors, include a $151,000 summer rental home, $6,000 spent at Duane Reade stores, and more than $2,000 in EZ-Pass charges, all incurred over a 13-month period. Prosecutors believe these were personal expenses, not legitimate business payments.

After leaving city government in the 1990s, Stein became a "placement agent" or middleman, making introductions to public pension funds. But authorities say he failed to fully report that income.

Starr has a single office in Manhattan, where he prepared taxes, handled expenses and gave investment advice to wealthy clients.

Attorneys for the two men could not immediately be reached for comment.

Both men have been charged by the U.S. Attorney for the Southern District of New York, Preet Bharara. The investigation was conducted with the cooperation of the New York County District Attorney’s Office, the IRS and the SEC.

With reporting by Charles Herman