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05.27.10

Madoff vs. Starr: Who's the Real Ponzi King?

As alleged con men go, New York money manager Kenneth Starr is no Bernie Madoff. The new guy, as Allan Dodds Frank reports, is a real rookie.

When alleged con man Kenneth Starr tried Thursday to convince a judge not to send him to jail without bail, he would have been better off listening to his lawyer and not talking.

Instead, like an elementary school child, Starr, the 66-year-old money-manager-to-the-stars, waved his right hand at Magistrate Debra Freeman to command attention, if not respect.

Maybe Starr should have realized that in fraud cases, most judges believe 110 percent is 10 percent too much.

Despite the judge’s admonition that he consult his defense lawyer one more time before opening his mouth, Starr persisted in his belief that his words might keep him out of jail on bail.

So what if his lawyer, Joshua Klein, already had failed in a pathetic attempt to argue that Starr is not a flight risk? Klein lamely suggested his client hid from the arresting agents in a closet because he was old, scared, and confused by the noise being made by those “gentlemen” outside the apartment shouting: “Federal agents. Open the door.”

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“I would never flee,” Starr said, before claiming the prosecutor’s assertion that he might have millions stashed overseas was “110 percent untrue.”

Maybe Starr should have realized that in fraud cases, most judges believe 110 percent is 10 percent too much.

Says one prominent defense attorney about Starr’s performance: “I would have had one hand wrapped around his mouth and the other one around his neck.” After the magistrate ordered Starr held without bail, U. S. District Judge John Koetl upheld the ruling and categorized the defendant as "a serious flight risk."

Starr’s two-and-a-half-minute outburst followed a detailed account from the prosecutor about how the accused began the day by instructing his apartment doorman, his wife, and his juvenile stepson upstairs to lie and tell federal agents he was not at home.

Just like in the cartoons, an agent noticed Starr’s shoes protruding below the hangers full of suits and, as he cowered in an upstairs closet, hauled him out by the collar of his black shirt. Starr’s wife—having first lied to the feds—was whispering, “He’s upstairs.”

It was a stark contrast to the arrest of Bernard Madoff, who answered the door at his East Side Manhattan penthouse, told the agents he had “no innocent explanation” and went downtown to be booked, and as it turned out, released initially on $10 million bail. Of course, Bernie had a dozen billionaire clients who each lost more money than all the money Starr has ever had under management from all his stars combined.

Bernie, from the moment he confessed to the biggest Ponzi scheme ever, was intent on steering suspicion away from his wife, sons, brother, niece, and others.

What allowed Bernie to take in more than $20 billion from investors was his mystique—his seeming refusal to give most of his thousands of clients anything more than token service.

By contrast, Starr, with just 200 or so clients and $700 million in assets under management, supposedly did everything for his clients. His Manhattan-based firm of 80 employees got celebrities to buy into the “concierge” concept of service. The clients gave Starr check-signing approval and power of attorney—ostensibly to handle their investments, their checking, their credit-card payments, their mortgages, their agents’ fees, their children’s allowance, and their alimony payments.

While the initial criminal complaint against Starr only alleges $30 million in fraud, Assistant U.S. Attorney William Harrington told the judge that he believes that number could multiply as the investigation continues and some of the other alleged participants are charged.

The other defendant in the case—former New York City Council President Andrew Stein—sat in magistrate’s court with a smile on his tanned face, perhaps fitting for a man who, for two decades, has somehow slipped away from prosecution in several cases and jurisdictions.

Stein was not linked to any of the frauds charged against Starr, yet he mysteriously received hundreds of thousands of dollars from accounts controlled by Starr.

Indeed, in a rare joint press conference, U.S. Attorney Preet Bharara and Manhattan District Attorney Cyrus Vance Jr. disclosed that they had combined forces after discovering they were both investigating Starr. In the case of the feds, they first encountered Starr while investigating Stein.

Stein, the judge decided, was worthy of a “Solomonic decision”—a 50 percent reduction in the prosecutors’ request for $500,000 bail and two co-signers. On the other hand, Stein surrendered to authorities in his lawyer’s office.

Starr, one FBI agent not involved in the case tells The Daily Beast, made a classic rookie mistake: “They always hide in the closet.”

Plus: Check out more of the latest entertainment, fashion, and culture coverage on Sexy Beast—photos, videos, features, and Tweets.

Allan Dodds Frank is a business investigative correspondent who specializes in white-collar crime. He also is president of the Overseas Press Club of America.