/ 30 May 2010

‘Madoff for celebrities’ charged with cheating stars

A Manhattan investment adviser has been dubbed a “Bernie Madoff for celebrities” after being charged with running a Ponzi scheme using cash looted from a client list that included A-list Hollywood stars such as Uma Thurman and Al Pacino and director Martin Scorsese.

Kenneth Starr (not special prosecutor Kenneth Starr who conducted the investigation into Bill Clinton) is alleged to have run a scam worth around $30-million using the same sort of methods as Madoff to defraud investors. Money would be shifted around from account to account if clients demanded withdrawals to give the illusion his investments were real or making good returns.

But, according to court documents filed in Manhattan last week, Starr and his wife, former erotic dancer Diane Passage, funded a lavish New York lifestyle that included buying a luxurious Upper East Side apartment for $7,5-million.

Starr was arrested last week at home amid scenes described by prosecutors in court that sounded straight from a crime movie. When federal agents arrived at his door, Passage told them her husband was not at home. But as they started to trawl through the apartment, Starr was found hiding in a walk-in closet after agents spotted his shoes sticking out from under clothing.

It was an inglorious denouement for a man who had become a high-profile fixture of Manhattan’s elite social scene, known for buying tables at lavish charity functions and fund-raising parties. Starr’s client list included some of the most famous celebrities in America. Aside from Thurman, Pacino and Scorsese, Starr also once handled investments for Diane Sawyer, Sylvester Stallone, Wesley Snipes and famed photographer Annie Leibovitz. US attorney Preet Bharara said Starr’s client list showed that no one was invulnerable to crime. “Anyone can be a victim of financial fraud,” he said.

It is not clear which celebrities Starr took money from. Pacino and Scorsese seem to have removed their funds long before his arrest. Leibovitz hinted that concerns about Starr may have been circulating long before his fall from grace. “News of Ken Starr’s arrest does not come as a complete surprise to me and I will follow this story with great interest,” she said in a statement. “Ken Starr no longer represents me and has not for some time.”

One apparent victim was Thurman, star of Kill Bill and The Avengers, who appears to have worked out that she was being defrauded and started her own investigation. Legal papers describe how “client number two” — as Thurman is referred to — had discovered that $1-million had unexpectedly been transferred from one of her bank accounts. She then went to Starr’s offices to confront him. The sum was eventually transferred back to her account, though it allegedly came from another unwitting Starr client and was not the original cash.

Starr is alleged to have looted about $5,75-million from 99-year-old Rachel “Bunny” Mellon, an heiress of one of New York’s most famous families, cash which helped him buy his apartment. He is also accused of scamming nearly $14-million from jeweller Jacob Arabov.

Starr’s methods appear to have been a classic Ponzi scheme. He would drum up money from potential investors by claiming he would put their money in “sure deals” that were bound to pay handsomely with little risk. He also used his exclusive client list to drum up interest from other famous names.

“He made it a point to seem like it was a very exclusive thing, creating a mystique about what it means to be a client of Mr Starr,” Bharara said.

At his appearence in court late last week, Starr’s lawyers explained that their client had hidden in a closet because of the violent way the authorities had banged on his door and loudly entered his apartment.

Starr himself told the court: “I’ve always been an extremely law-abiding person.”

If convicted, he faces up to 25 years in jail. – guardian.co.uk