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Financial advisor to the stars Kenneth Starr pleaded guilty Friday, September 10, to swindling his clients in a fraud case that involved the theft of millions of dollars from celebrity clients such as Uma Thurman and Al Pacino.
Starr, who is to be sentenced on December 15, admitted to New York Magistrate Judge Theodore Katz that he ran a $50 million Ponzi scheme that endured for five years before he was caught by the Securities and Exchange Commission. He used the money to fund a lavish lifestyle that included the purchase of a $7.6 million apartment on the Upper East Side in Manhattan, according to the SEC.
"I used a portion of the money for my own purposes," the 66-year-old Starr said in Manhattan federal court, according to a report in the New York Post.
Charges in the guilty plea included investment advisor fraud, wire fraud, and money laundering. Starr's plea deal calls for a prison sentence of 121 to 151 months.
The charges included Starr's purchase through an entity called Colcave of the multimillion-dollar apartment where he and his wife, Diane Passage, resided. The SEC's complaint named Starr, Passage, and Colcave as defendants to recover client assets now in their possession. In addition to the emergency relief, the SEC's complaint seeks payment of interest and financial penalties from the defendants.
"Starr breached his fiduciary duty as an investment adviser in the most egregious manner possible - he stole the funds his clients entrusted to him," said George Canellos, director of the SEC's New York Regional Office, in a statement released May 27, when the fraud case was announced. "Starr betrayed the trust of some clients who have looked to him for years for investment advice and financial guidance."
The SEC alleged that Starr and his two companies, Starr Investment Advisors and Starr & Co., violated securities laws pertaining to investment advisers and made unauthorized transfers of money in client accounts that ultimately wound up in Starr's personal accounts.
"Most investment advisers do not maintain physical custody of their clients' assets, and those assets are instead held by qualified third-party custodians such as a regulated bank or a registered broker-dealer," according to the SEC release.
Client assets were held in a safe in Starr & Co.'s offices even though Starr was not a qualified custodian.
Read financial advisors' post-Starr thoughts about how to reassure clients from the archives of InvestmentAdvisor.com.