Ken Starr, advisor to the stars, accused of $30m Ponzi | FT Alphaville

Ken Starr, advisor to the stars, accused of $30m Ponzi

On Thursday, the US Department of Justice issued a curious one-liner:

A press conference will be held today to announce the unsealing of charges against financial advisor Kenneth Starr for allegedly perpetrating a $30 million fraud against his clients.

This Kenneth Starr is a purveyor of investment and tax advice to the likes to Martin Scorsese — his somewhat more famous namesake is the author of a certain report into President Bill Clinton’s dalliances with Monica Lewinsky.

Starr’s status as a significant Hollywood player goes some way to explain why the DOJ would bother to host a conference for a relatively small alleged Ponzi.

Starr’s eponymous investment advisory firms have also managed money for Sylvester Stallone and Annie Leibovitz, according to various media reports. Stallone sued Starr in 2002, alleging that he was ‘led financially astray’, the NYT reported.

In the case of Leibovitz, Starr introduced the portrait photographer to Art Capital Group. The private equity fund provided Leibovitz with a hastily-arranged $24m loan, an arrangement which almost cost her the copyright to all her works.

Starr also advised Wesley Snipes, and was later called on as a witness when the former action hero faced charges of criminal tax evasion. Here’s an extract from Starr’s 2008 testimony, via The Snipes Trial blog (emphasis ours):

On cross examination, [Snipes’s] defense attorney Barnes attempted to claim that Snipes had lost money in 1998 as a result of Starr’s mismanagement. Starr said that all of the investments he recommended and managed had made money but that Snipes had spent a considerable sum that year filming documentaries. Barnes accused Starr of taking out a loan without Snipes knowledge, but Starr said that Snipes had taken out the loan and even signed several renewal notes. Snipes had even complained to the New York District Attorney’s office about Starr, and the DA had not taken any action against Starr. Barnes asked whether Starr had gotten Snipes involved in the doomed Planet Hollywood investment, but Starr said that Snipes’ friend Robert Earl had convinced Snipes to invest.

As of Thursday morning in New York, Starr was facing five separate criminal charges, according to the DOJ’s complaint:

– Wire fraud scheme to obtain property

– Fraud by an investment advisor

– Money laundering

– False statements in an IRS filing

– False statements to a federal officer

(In addition to criminal charges, Starr is facing a civil lawsuit filed by the SEC.)

Also named in the DOJ suit: Andrew “Andy” Stein, a former high-profile New York politician (another reason the DOJ would bother with a press conference), and Starr’s wife, Diane Passage.

Among other things, the DOJ’s complaint accused Starr of defrauding an actress, identified only as “Client-2”, and of transferring $1m from her bank account without her permission or knowledge.

Extract from DOJ complaint v Ken Starr

Starr eventually transferred the money back to the account, but according to the complaint, “it does not appear to have been a return of Client-2’s funds but rather appears to have been funded from another client”.

A classic Ponzi, in other words.

According to the SEC’s complaint, Starr funneled about $7m from client accounts to fund the purchase of a 5-bed, 6.5 bathroom Manhattan apartment, complete with 32-foot granite lap pool and a 1,500 square foot garden.

The allegations against Starr, who could not at pixel time be reached for comment, come when Hollywood is still recovering from losses incurred thanks to the schemes of fund manager Bernie Madoff.

As Portfolio reported in February 2009, four months before Madoff was sentenced to 150 years in prison for masterminding the most epic Ponzi scheme on record:

Condé Nast Portfolio has learned that Arnon Milchan, the billionaire producer of such films as Fight Club and Pretty Woman, lost at least $18 million in the scam. (Milchan declined to comment.) Actors Kevin Bacon and Kyra Sedgwick, who are married, have acknowledged that they too were taken.

Other Madoff clients included Steven Spielberg and Jeffrey Katzenberg, chief executive of DreamWorks Animation SKG, Portfolio said.

As with Bonnie, Yonni and Disney, the travails of Hollywood’s power players and their money would make an interesting film, though at this point it’s not clear whether anyone can even afford the rights.

Related links:
How Could This Happen to Annie Leibovitz? – New York Magazine
Credit Crunch, the movies’ latest drama – FT (2007)
Professional athletes and their money, Ponzi edition – FT Alphaville
The “Eddie Murphy” rule – FT Alphaville