An interim monitor appointed to oversee companies tied to financial adviser Kenneth Ira Starr, accused of defrauding clients of at least $30 million, said only about $40,000 remains in company accounts.
Aurora Cassirer filed her report today in Manhattan to U.S. District Judge Sidney Stein, who is presiding over a civil case brought by the U.S. Securities and Exchange Commission. Stein appointed Cassirer June 1 as an interim overseer for the defendant’s companies, including Starr Investment Advisors LLC, Starr & Co. and Colcave LLC, and for financial affairs involving Starr’s wife, Diane Passage.
Cassirer said that as of June 1 the Starr companies had about $1.2 million in debt and a weekly payroll of about $139,000. Of the 140 clients Starr had a month ago, 30 to 40 remain, the monitor said. She said Colcave has accounts worth about $700,000.
“The monitor has concluded, and hereby recommends to the Court and to the SEC that a receiver be appointed as soon as possible,” said Cassirer of the law firm Troutman Sanders LLP.
Chief Compliance Officer
Cassirer said no one is acting to manage the firm, including Starr’s son, Ron, whom she identifies in the report as chief compliance officer of Starr Investment Advisors.
“There is therefore currently a vacuum of management at the Starr Companies,” Cassirer said, adding later, “For these reasons, I believe that the appointment of a receiver is the only feasible way to bring some order and control to this situation.”
She recommended a monitor or receiver act quickly to get control of the books and records of the Starr companies, reconstruct records and begin “conducting necessary investigations for possible fraudulent or otherwise illicit transfers involving” Starr or others who were sued by the SEC, including his wife.
Starr, 66, was arrested and charged May 27 with orchestrating a fraud scheme that prosecutors said may exceed $30 million as more victims come forward. The SEC sued Starr and Passage the same day and won a court order freezing 23 Starr- related bank accounts, according to Manhattan U.S. Attorney Preet Bharara.
A judge said Starr might flee if released and ordered him held without bail. Starr’s court-appointed lawyer, Peggy Cross, couldn’t immediately be reached for comment. He didn’t enter a plea at his initial court appearance.
Starr managed more than $700 million for about 175 high net-worth clients, prosecutors and regulators said. They included actress Uma Thurman and heiress Rachel “Bunny” Mellon, according to people familiar with his business.
Starr, a nonpracticing lawyer, cheated clients of his New York-based Starr Investment Advisors and Starr & Co. through two schemes, prosecutors said. Starr and various businesses he controlled provided advisory, accounting, tax preparation, business management, bill-paying a “concierge services,” the SEC said in its civil complaint.
In some instances, Starr solicited investments in what he claimed were “sure deals,” then diverted funds to himself or to associates or into risky ventures where he had a stake, the government said.
One recipient of funds was a company affiliated with ex- professional basketball player Julius “Dr. J” Erving, who led the Philadelphia 76ers to their last National Basketball Association championship in 1983, according to court papers. Erving isn’t accused of wrongdoing by the U.S. Erving’s lawyer, Dorna Taylor, declined to comment.
Starr is also accused of stealing client funds in what prosecutors called a Ponzi scheme, using money from some investors to repay others. Prosecutors said they believe there had been a “comingling” of client funds by Starr.
Judge Stein said during the June 1 hearing that if no lawyer appears in court on behalf of Starr or the companies he controlled, the court could issue a preliminary injunction against the businesses by June 10 and appoint a receiver to oversee the businesses.
No lawyer today filed papers on Starr’s behalf in the SEC’s civil case.
The civil suit is SEC v. Starr, 1:10-cv-04270, and the criminal case is U.S. v. Starr, 1:10-mj-01135, U.S. District Court, Southern District of New York (Manhattan).