Less than 24 hours after Kenneth Ira Starr, an investment adviser whose clients included dozens of celebrities and socialites, was arrested and accused of several counts of fraud, federal investigators are still attempting to measure the size and scope of the Ponzi scheme allegedly run by Mr. Starr, who shares a name with -- but is not related to -- the former Whitewater prosecutor.
U.S. Attorney Preet Bharara said at a news conference that investigators were searching Mr. Starr's office in New York and were working to freeze 23 bank accounts as they search for more victims. "Anyone can be a victim of financial fraud, whether you are an ordinary citizen or a savvy businessman or a sophisticated celebrity," Mr. Bharara said. "If a deal sounds too good to be true, it probably is."
According to the SEC, Mr. Starr's firm, Starr Investment Advisers (SIA), is a registered investment adviser. Another Starr vehicle, Starr & Co., is an investment advisor that also offers concierge services such as tax preparation and bill payment. That firm has roughly 175 clients, the SEC noted in a emergency complaint filed against SIA on Thursday. (To read the complaint, click here)
Press accounts have put Starr Investment Advisors assets under management at $700 million. But according to a revised ADV form filed on May 25 with the Securities and Exchange Commission, SIA has roughly $1.3 billion in client assets under management. The form was signed by Angeli Granat, who is listed as co-compliance officer of the firm.
Mr. Starr also had a firm registered with Finra, Diamond Edge Capital partners up until March 2010.
According to his Finra
BrokerCheck report, Mr. Starr had an open SEC investigation on his records. That investigation was opened on July 23, 2009, and was only described as a "fact finding inquiry" in which Mr. Starr was subpoenaed by the SEC to disclose documents relating to his business at Starr Investment Advisors. No further details were given because the investigation was not public.
An SEC spokesman declined to comment on that probe.
Federal prosecutors have estimated that Mr. Starr allegedly stole some $30 million from his clients, who included Uma Thurman, Sylvester Stallone, Caroline Kennedy and Candice Bergen. (Read the full story).
One client in particular, Jacob “the Jeweler” Arabov, a New York jewelry store owner who was convicted in 2008 of falsifying records and making false statements in a federal investigation, is said to have been defrauded of more than $14 million by Mr. Starr – roughly half the money allegedly stolen from clients. As of Friday morning, Mr. Starr's other alleged victims had not been confirmed.
But the ADV filing indicated that at least 75% of SIA's clients are high net worth individuals. The remainder of the firm's clients are charitable organizations. The filing also stated that the firm employs up to five registered representatives of a broker-dealer.
The SEC complaint noted that Mr. Starr and others at the firm have power of attorney or signatory authority over many bank and investment accounts belonging to their clients. It also stated that the firm had failed to comply with custodial rules by allegedly failing to engage an independent public accountant for the years 2006-2009 to perform a surprise examination of its advisory clients' assets over which the firm had custody. In addition, some assets of SIA clients were allegedly held in a safe in Starr & Co's offices – even though none of the defendants named in the SEC complaint are qualified custodians, the commission noted.
In the purported scheme, Mr. Starr “systematically defrauded his clients,” said Robert Beranger, an agent with the
Internal Revenue Service, in a criminal complaint in Manhattan federal court yesterday.
“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,” sometimes assuming “total control” over their “financial lives,” Beranger said in court papers.
Wire services contributed to this report.
