Kenneth Starr, an investment adviser to celebrities and other wealthy New Yorkers, was coaxed from a darkened suit closet by U.S. agents at his apartment on Thursday to face charges of running a fraud of at least $30 million, prosecutors said.

Starr ran a complex set of schemes involving his son, his wife, prominent New York City Democratic Party politician Andrew Stein, a former national official of a major political party, and a partner at a prominent national law firm, an affidavit by an Internal Revenue Service agent said.

The criminal complaint charging Starr with wire fraud, investment adviser fraud and money laundering, alludes to a number of wealthy New Yorkers as his clients or associates -- an actress, an elderly heiress, a retired prominent basketball player and a jeweler.

Starr, 66, was detained without bail by U.S. Magistrate Judge Debra Freeman, who agreed with prosecutors that there was a risk of flight. An earlier court document gave his age as 65.

A U.S. prosecutor, William Harrington, told the judge that when agents arrived at Starr's luxury apartment building early on Thursday morning to arrest him, Starr told the doorman: tell them I'm not here, only my wife is here.

The court heard that an hour later, when agents said they would use a master key to open the door, Starr's wife let them in and whispered he's upstairs. The agents found him in a dark closet, his shoes protruding from under suits.

The judge released co-defendant Stein, who was charged with lying to the IRS, on $250,000 bail after their joint appearance in Manhattan federal court. Starr's lawyer, Joshua Klein, said he would appeal the denial of bail.

None of the clients were identified in court documents, but a lawyer said one was 99-year-old heiress Rachel Mellon.

She is shocked to hear of this alleged criminal activity of Ken Starr, whom she has known for many, many years and in whom she had the utmost trust and confidence, Mellon's lawyer, Alexander Forger, said in a statement.

Another client purportedly duped by Starr was jeweler Jacob Arabov, whose wife recorded many of her conversations with Starr when she became suspicious of him.

It is now clear that they were defrauded, their lawyer, Ben Brafman, said in a statement. He said they intend to pursue all legal remedies to recover their investments.

Later on Thursday, following Klein's bail appeal, U.S. District Judge John Koeltl ruled Starr must stay detained until a bail proposal was submitted that would ensure he would not flee. Klein declined to comment.


An April 2008 civil lawsuit against Starr alleged he stole millions from aging widow Joan Stanton, an actress who voiced Lois Lane in a 1940s radio show The Adventures of Superman. Stanton has since died.

That lawsuit said Starr also managed money for film director Mike Nichols, writer Neil Simon, journalist Diane Sawyer, Broadway director Hal Prince and actor Wesley Snipes.

NBC News in New York reported that other clients include film director Martin Scorsese, Hollywood star Uma Thurman and celebrity photographer Annie Leibovitz.

The court document refers to an actress identified as Client-2 who, accompanied by her lawyers, went to the office of Starr & Co on April 26 to ask him why $1 million was wired to one of his associates from her account without her knowledge. The money was eventually returned.

Starr's son was neither identified by name in the complaint nor charged with any crime. Lawyers for Starr's son and wife, Diane Passage, could not immediately be found. Passage was named in a civil complaint by the U.S. Securities and Exchange Commission. It said Passage produces films and plays.

Stein, a former president of the New York City Council, owes more than $2 million in back taxes, the complaint said. His lawyer, Andy Maloney, said in court that Stein has been talking, cooperating for the last six months as much as any defendant as I've ever seen.

Manhattan U.S. Attorney Preet Bharara said at a news conference that some of Starr's clients were actually pawns in a Ponzi scheme since January 2008 through last month.

A Ponzi scheme is one in which corrupt money managers use funds from some clients to pay other clients. The scheme collapses when they are eventually unable to meet redemptions.

Many such frauds have unraveled in the financial crisis, the most infamous of which was financier Bernard Madoff's decades-long multibillion-dollar fraud. Madoff, 72, is serving a 150-year prison sentence.

Authorities accused Starr of misappropriating millions of dollars of client money for his personal use, including the purchase in April of a new luxury Manhattan apartment worth $7.5 million. The SEC said it had five bedrooms, 6 1/2 bathrooms, a 32-foot granite lap pool and a 1,500-square-foot garden.

Stein was accused of failing to disclose the existence of Wind River LLC, a shell company established in 2008 by an unidentified lawyer. Starr stated that funds going to Wind River were loans to Stein for his work as a placement agent for investments, according to the affidavit.

Starr is not the same Ken Starr who led the investigation of former President Bill Clinton in the affair over White House intern Monica Lewinsky.

The cases are USA v Kenneth Starr and Andrew Stein, U.S. District Court for the Southern District of New York and SEC v Starr et al No. 10-04270.

(Reporting by Grant McCool and Basil Katz; Editing by Maureen Bavdek, Phil Berlowitz)