They violated securities laws pertaining to investment advisers in order to perpetrate the scheme."
The release goes on to clarify the relationship between the attorney Jonathan Bristol and the former financial advisor Kenneth Starr:
"Most investment advisers do not maintain physical custody of their clients’ assets, and those assets are instead held by qualified third-party custodians such as a regulated bank or a registered broker-dealer. In this case, the SEC alleges that certain client assets were held in a safe in Starr & Company’s offices despite the fact that Starr and his firms were not qualified custodians. Their ability to steal client funds was enhanced by the failure of Starr Investment Advisors to comply with asset custody rules that require firms to engage an independent public accountant to perform yearly surprise examinations of client assets in the firm’s custody."
George Canellos, Director of the SEC’s New York Regional Office said, "Starr breached his fiduciary duty as an investment adviser in the most egregious manner possible — he stole the funds his clients entrusted to him. Starr betrayed the trust of some clients who have looked to him for years for investment advice and financial guidance."
The SEC release also provides further detail regarding the alleged
fraud: "According to the SEC’s complaint, filed in federal court in Manhattan, Starr and his companies transferred $7 million from the accounts of three clients between April 13 and April 16, 2010, without any authorization. The transferred funds were ultimately used to purchase a $7.6 million apartment on the Upper East Side in Manhattan on April 16. When one of the clients detected the unauthorized transfer and demanded the money be returned, Starr reimbursed that client with money siphoned from the account of another client without authorization. The other two investors have not been reimbursed."
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