Celebrity Financial Adviser Kenneth Ira Starr Charged With Fraud

May 27, 2010 — -- Kenneth Ira Starr, a financial adviser whose clients have included actor Sylvester Stallone, director Martin Scorsese and former Secretary of State Henry Kissinger, has been arrested on charges that he defrauded $30 million from clients, according to prosecutors.

According to the criminal complaint, one of Starr's chief alleged victims was celebrity jeweler Jacob Arabo, who lost $13.875 million in the alleged Ponzi scheme. Arabo, born Arabov, is better known as Jacob the Jeweler and is famous for the extravagant jewelry he creates for rap stars and other celebrities, The name "Jacob the Jeweler" is referenced in dozens of rap songs.

Starr, 65, of Manhattan, runs Starr Investment Advisors and manages more than $700 million in investments. He faces federal charges of wire fraud, investment adviser fraud and money laundering.Also charged in the case is Andrew Stein, the former borough president of Manhattan, who prosecutors say aided Starr in defrauding his clients.

The U.S. Securities and Exchange Commission also filed a civil lawsuit today against Starr, who is also a lawyer, claiming that he used his power of attorney or signatory authority over client accounts to cheat them out of funds that he then transferred to a personal account. The SEC says that Starr used these funds in April to purchase a $7.6 million luxury Manhattan apartment that features five bedrooms, a thirty-two-foot granite lap pool and a fifteen-hundred square-foot garden.

According to the criminal complaint, the day after Starr and Jacob "the Jeweler" Arobo met at a 2006 charity event, according to the complaint, Starr bought a $70,000 watch in Arabo's store. Soon they were meeting once a week and developed a close personal relationship, and Arabo allegedly considered Starr "like a brother." In all, Starr bought more than $400,000 in jewelry from Arabo.

Arabo was arrested on federal money laundering charges in 2006 and ultimately pleaded guilty to lesser charges. He was sentenced to 30 months in prison. During 2008, before he began serving his sentence, according to the complaint, he decided to entrust his money to Starr, who assured him his wife would be "very rich" in his absence. Jacob invested about $13.875 million without reading a document or having a lawyer look at it because he considered Starr a friend.

Only after Arabo began serving his sentence in January 2009, according to the complaint, did his wife notice that something was amiss with the finances. She began asking Starr for documentation for tax purposes and was not satisfied with his answers. She also told investigators she was unable to get Starr to return any funds to her. She and her husband then began recording conversations with Starr, which they have turned over to federal investigators.

The complaint also provides details about other alleged victims. It says that Starr transferred $1 million on April 13 from an account belonging to a client labeled "Investor No. 1" and when the Investor complained, Starr repaid the money with funds from the account of "Investor No. 2," outlining exactly how he allegedly ran his illegal business.