An interesting article out of the WSJ today on another investment fraud:

NEW YORK—A New York financial adviser to the rich and the famous was on Thursday accused of running a $30 million investment fraud and using the funds to enrich himself and friends, including a former New York City politician.

Kenneth I. Starr allegedly used his access to famous and powerful clients to “burnish an image of trustworthiness” and, in some cases, assumed total control over his clients’ financial lives, according to a criminal complaint filed by federal prosecutors in the U.S. Attorney’s office in Manhattan.

Andrew Stein, the former president of the New York City Council, was described as an “associate” in the alleged scheme. He was on Thursday charged with making false statements in an Internal Revenue Service and making false statements to an IRS agent.

The criminal complaint didn’t have details on the alleged victims, but it described them as an unnamed hedge fund manager and well-known philanthropist, an actress, a former executive of a talent agency, an elderly heiress and a jeweler who is a convicted felon.

Both Mr. Stein and Mr. Starr are expected to appear in federal court in Manhattan later Thursday. Their lawyers didn’t immediately return phone calls seeking comment Thursday.

Prosecutors accused Mr. Starr—the chief executive of Starr Investment Advisors and manager of Starr & Co. LLC—of engaging in two types of schemes.

He allegedly solicited clients for investments in entities or businesses he described as sure deals, but diverted all or some of the money to himself, his family or friends, according to the criminal complaint.

Mr. Starr allegedly used some of the funds to purchase a luxury apartment on Manhattan’s Upper East Side, worth at least $7.5 million, the complaint said. About $1.6 million of funds were invested in an entity known as Wind River LLC, prosecutors claimed. The money was used to pay for “extravagant personal expenses” of Mr. Stein, including hundreds of thousands of dollars to pay his American Express bills, prosecutors said.

Mr. Starr also allegedly made unauthorized transfers of client funds to himself or his associates. When clients sought to be repaid, Mr. Starr would transfer funds from other clients, consistent with a “Ponzi” scheme, according to the criminal complaint.

The Securities and Exchange Commission, which filed a related but separate civil complaint, said Starr Investment Advisors provides investment adviser services to more than 30 high-net-worth individuals has assets under management in excess of $700 million.

Starr & Co. provides accounting, tax preparation and other services to about 175 clients, the SEC said.

Mr. Starr isn’t the Kenneth Starr who served as prosecutor in the Whitewater investigation.
—Brett Philbin contributed to this article.