Kenneth Starr Charged With Running $30 Million Ponzi Scheme

By Daniel Indiviglio

Somewhere, Bill Clinton is smiling. One-time special prosecutor who uncovered the dirty details of the former President's affair with intern Monica Lewinsky has been engaged in some bad behavior of his own, according to the Justice Department and Securities and Exchange Commission.

Correction (~3:18pm): Apparently there are two famous Kenneth Starrs. The one charged is an investment advisor to the stars, not the former special prosecutor. Apologies to the other Kenneth Starr -- and to Bill Clinton if we got his hopes up.

Kenneth Starr, notable Hollywood investment advisor -- not the former special prosecutor of the same name who detailed the Bill Clinton-Monica Lewinsky affair -- is being charged with running a $30 million Ponzi scheme. Complaints have been filed by both the Justice Department and Securities and Exchange Commission.

The Financial Times Alphaville blog breaks the news. It explains that Starr provided investment and tax advisory services for a number of high profile clients. Many of those are big names in entertainment including Martin Scorsese, Annie Leibovitz, Sylvester Stallone, and Wesley Snipes. The DOJ claims (.pdf) that Starr defrauded his clients, one of which it even says is an actress. In particular, there are five charges:

  • Wire Fraud
  • Investment Advisor Fraud
  • Money Laundering
  • False Statements in an IRS Filing
  • False Statements to a Federal Officer

A separate, but similar, SEC complaint against Starr Investment Advisors LLC and Starr & Company LLC explains some of the alleged activity:

According to the SEC's complaint, filed in federal court in Manhattan, Starr and his companies transferred $7 million from the accounts of three clients between April 13 and April 16, 2010, without any authorization. The transferred funds were ultimately used to purchase a $7.6 million apartment on the Upper East Side in Manhattan on April 16. When one of the clients detected the unauthorized transfer and demanded the money be returned, Starr reimbursed that client with money siphoned from the account of another client without authorization. The other two investors have not been reimbursed.

This sounds like pretty prototypical Ponzi scheme maneuvering. Take money from one client, channel it to another when necessary, and keep some for yourself. The DOJ complaint has similar sorts of allegations in even greater detail. It explains the tax scheme accusation, which involves former President of the New York City Council Andrew Stein, who Starr advised.

The SEC lawsuit also lists Starr's wife Diane Passage as a defendant whose assets have been seized.

Update: Daily Beast reports that the actress mentioned above who was defrauded is Uma Thurman.

This article available online at:

http://www.theatlantic.com/business/archive/2010/05/kenneth-starr-charged-with-running-30-million-ponzi-scheme/57362/