The Federal Courthouse in the Southern District of New York. The graveyard of many a sophisticated con artist.
This is an update of a "Street Sweeper" column that originally ran on May 2, 2011.
Kenneth Starr was the owner and president of Starr & Company, LLC, which purported to be in the business of managing the assets of, and providing financial planning advice to, high net-worth and celebrity clients. As you likely figured out already, it's that word "purported" that makes all the difference in the world - particularly when we're talking about criminal fraud.
Starr presented himself as being in the business of managing the assets of (and providing financial planning and investment advice to) high net-worth and celebrity clients. Among other things, Starr paid bills for his clients, assisted them with tax filings, and recommended investments to them. For some clients, Starr assumed what amounted to nearly total control over their financial lives.
Without a doubt, you need to really know who you're trusting when you turn over cradle-to-grave control of your cash flow to anyone. Unfortunately, Starr's victims had no idea as to how superb a con man he was.
Starr would often talk to his clients about "sure deals." Unfortunately, the only thing sure about these scams was that the money never quite got invested in what folks thought they were being sold, and the conflicted interests of Starr, his wife, and his close associates were never quite divulged.
Of course, as with all Ponzi schemes, this one started to run out of steam and eventually deflated. As the pressure mounted, Starr transferred funds between clients in order to cover demands for payments when he lacked available funds.
The Beginning of the End
On May 27, 2010, Starr was arrested on allegations of wire fraud, fraud by an investment advisor and money laundering. On June 10, 2010, Starr was indicted (read the complete Indictment here) on
The Indictment alleged that Starr defrauded or attempted to defraud at least 11 victims of approximately $59 million.
On September 10, 2010, Starr pled guilty inManhattan federal court to wire fraud, money laundering, and investment adviser fraud. Among other things, he admitted that between 2009 and 2010, he stole his clients' money and laundered the stolen money by routing it through an attorney trust account to disguise the true source of the funds. The total loss associated with Starr's fraud was between $20 million and $50 million.
Based upon his plea, Starr faced a statutory maximum sentence of 45 years, which likely would have been fashioned into a sentence of 121 to 151 months' imprisonment. Also, Starr agreed to forfeit the multimillion-dollar Upper East Side condominium he purchased using clients' money. Further, the government reserved the right to seek to forfeit up to $50 million in assets owned or controlled by Starr, and reserved the right to seek up to $50 million in restitution for victims.
On March 2, 2011, Starr, was sentenced to 7 1/2 years in prison.
An Officer of the Court
From November 2008 through May 2010, Jonathon Bristol, an attorney admitted to practice law in New York and New Jersey and a law partner at the prestigious Winston & Strawn LLP, helped Starr defraud his clients and concealed his criminal conduct by using two separate attorney trust accounts that were under his control to launder Starr's defrauded funds.
When Starr's clients confronted Bristol about why their money, entrusted to Starr, had been transferred to Bristol's escrow accounts without their knowledge, the lawyer lied to them about the purpose of the transactions. By February 2010, Bristol faced increasing pressure because of Starr's failure to pay Winston & Strawn's legal fees. In March 2010, Bristol reported to senior management that Starr would be paying $100,000 of about $750,000 that Starr owed. Although the law firm recieved a $100,000 payment that month, that was obtained by Bristol from Starr's clients' laundered funds.
On December 16, 2010, Bristol surrendered to law enforcement and was charged with money laundering in connection with Starr's fraud. If convicted, Bristol faced a maximum sentence of 20 years in prison.
On May 2, 2011, Bristol pled guilty to conspiracy to launder nearly $19 million of Starr's funds. Bristol admitted to allowing Starr to wire funds in and out of his attorney escrow account, notwithstanding that the lawyer knew the funds were proceeds of an illegal scheme by Starr to steal money.
Bristol faces a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. Further, as part of his plea agreement with the government, Bristol agreed to pay restitution in the amount of $18,860,282.69. He is scheduled to be sentenced in September 2011.
In the Department of Justice's May 2, 2011, press release announcing Bristol's plea, we were offered this observation:
Manhattan U.S. Attorney PREET BHARARA stated: "Attorneys are supposed to promote respect for the rule of law. But Jonathan Bristol abused his position as a partner at a prominent New York City law firm to break the law over and over again. Bristol should have been a gatekeeper; instead, he was an enabler to Kenneth Starr and his multi-million dollar fraud."
So, waddya think happens to a law partner at a prominent law firm who abuses his position to repeatedly break the law as an "enabler to Kenneth Starr and his multi-million dollar fraud?"
On December 18, 2012, Bristol was sentenced to time served, three years of supervised release, and a $100 special assessment fee; and he was ordered to pay $18,860,282.69 restitution.
Yeah, you read that right: time served! Seriously? Time served?? For a lawyer involved in $19 million worth of money laundering for a high-profile Ponzi scheme?
I'll save my sarcasm. Feel free to add your own.
The Department of Justice, the Securities And Exchange Commission, and other so-called Wall Street cops have an odd concept of justice and effective deterrence. Sure, Starr got 7 1/2 years and Martha Stewart got five months, but Bristol gets time served? Worse, when it comes to going after the big boys and the too-big-to-fail, prosecutors and regulators have a penchant for issuing all sorts of tough-talk press releases but closing out those cases on the basis of the payment of fines and restitution but no meaningful jail time: HSBC, Standard Chartered, Bank of America, JP Morgan Chase, Citigroup, Wells Fargo - hey, I'm too tired to add to that list, you give it a shot.
As for me, I just can't wait, can't wait I say, for that next clarion call of hyperbole in the form of yet another DOJ press release trumpeting the next most important, highest-profile Ponzi case or mortgage fraud or LIBOR case in the history of mankind, and how Wall Street's cops are sending a message that Wall Street's malefactors will be trembling in their boots while standing in their bank's vaults amid all the dirty dollars amassed from all their dirty dealings. Whoa - yer all gonna get time served!
Oops, I think some of my sarcasm dripped out. Sorry.