Chance Yeh/PatrickMcMullan
Browse the BusinessWeek Archive
Kenneth Starr knew how to cultivate relationships with powerful people, and he did it in the most transparent way—by serial name-dropping. According to one occasional lunch companion, dining with Starr at the Four Seasons Grill Room in New York meant listening to him reel off names as fast as he guzzled Diet Cokes. Certain people would come up again and again. According the lunch acquaintance, Starr would say he had lunch with Pete Peterson or that he and Pete were talking at the Council on Foreign Relations—long chaired by Peterson—or that he had done something with Pete.
Starr managed money for a living, and his relationship with Peterson, the co-founder of the private equity firm Blackstone Group (BX), was one of his key assets. Another asset was Rachel "Bunny" Mellon, the 99-year-old widow of the bank heir and philanthropist Paul Mellon, who started Starr on his path to wooing the rich.
His career famously came to an end last month when FBI agents arrived at his home on Manhattan's Upper East Side and found Starr hiding in a closet. His $7.5 million condominium, which he shared with his fourth wife, Diane Passage, a pole dancer, featured floor-to-ceiling windows, a granite lap pool, and a 1,500-square-foot garden, all allegedly financed with plundered cash. Ten days after his arrest, a grand jury indicted Starr for cheating 11 clients—Jim Wiatt, the former head of the William Morris Agency, and Uma Thurman among them—out of $59 million. Starr allegedly pocketed half that amount, while the other half was placed in investments in which he or his friends had a secret interest. Starr has denied wrongdoing and is being held at the Metropolitan Correctional Center in lower Manhattan.
The Securities & Exchange Commission brought its own civil fraud lawsuit against Starr and Passage, seeking the return of tens of millions of dollars. The two haven't yet responded to the SEC. A judge last week extended the freeze on the couple's assets at a hearing attended by Passage, who looked uncharacteristically demure in a pink Vivienne Westwood cardigan and a black skirt. She declined all reporters' questions except for one from Bloomberg Businessweek, about her age: "Thirty-four," she said. "You can take a couple of years off that if you want to."
The disintegration of Starr & Co., which once managed more than $700 million for about 175 wealthy individuals, exposes an uncomfortable truth about the elite crowd he preyed on—that these wealthy, supposedly sophisticated people could be such easy marks for fraud. The numbers involved are not on the scale of Bernie Madoff, but Starr shared Madoff's ability to create an aura of exclusivity around himself that appealed to the elite—which was augmented by Starr's attendance at prestigious business gatherings, such as Allen & Co. President Herbert Allen's annual media conference in Sun Valley, Idaho.
Still, there was no special trick to Starr's alleged con game. How is it so many people so willingly allowed their pockets to be picked?
"Everyone follows the herd," says Ken Springer, a former FBI agent and founder of New York-based investigative firm Corporate Resolutions. "Everyone says this guy is the best, and no one vets the people."
Starr's connections to Blackstone go back to the early 1990s when the firm was considerably smaller than it is now. According to a lawsuit filed in 2009 by the estate of former Starr client Joan Stanton, the investment firm received $90 million from clients of Starr & Co. The actor Wesley Snipes, for instance, put $1 million into Blackstone, according to testimony in the actor's 2008 tax-evasion trial.
Post a comment about this story in Reader Discussion…
Track and share business topics across the Web.
RSS Feed: Most Read Stories
RSS Feed: Most E-mailed Stories
RSS Feed: Most Discussed Stories
About Advertising EDGE Programs Reprints Terms of Use Disclaimer Privacy Notice Ethics Code Contact Us Site Map
©2010 Bloomberg L.P. All Rights Reserved.
Read Full Article »