Kenneth Starr, 66, of Manhattan, was charged with wire fraud, investment adviser fraud and money laundering and was awaiting an initial court appearance in federal court in Manhattan.
Lawyers for Starr and Stein did not immediately respond to telephone messages seeking comment on the charges, which carry a potential penalty of 45 years in prison for Starr and eight years for Stein.
There's no indication Snipes or Stallone were victims, but a criminal complaint filed by the IRS said the cheated clients included a woman who was a former hedge fund manager and well-known philanthropist, an actress who considered herself a longtime close friend of Starr's, a former talent agency executive and his wife, an elderly heiress, and a prominent jeweler with a flagship store in Manhattan. They were not identified by name.
The jeweler at one point learned some of his money was invested with a company owned in part by a retired prominent basketball player in Georgia, IRS agent Robert Beranger said in the complaint, filed in Manhattan federal court.
Close associates who benefited from Starr's schemes included his son, a former national official of a major political party, Stein and a partner at a prominent national law firm, Beranger said.
U.S. Attorney Preet Bharara said at a news conference that investigators were searching Starr's office and were working to freeze 23 bank accounts as they search for more victims.
"Anyone can be a victim of financial fraud, whether you are an ordinary citizen or a savvy businessman or a sophisticated celebrity," Bharara said. "If a deal sounds too good to be true, it probably is."
Echoing a theme played out in the multi-decade fraud of tens of billions of dollars carried out by jailed financier Bernard Madoff, Starr became friends with some of his best clients and made them feel as if they were lucky to be part of his world, authorities said.
"He made it a point to seem it was a very exclusive thing, creating a mystique about what it means to be a client of Mr. Starr," Bharara said.
Starr, an attorney, is head of New York-based Starr and Co. and Starr Investment Advisors LLC., which federal regulators said has accounts exceeding $700 million. Stein was borough president of Manhattan from 1978 through 1985, and was president of the New York City Council from 1986 through 1993.
A separate complaint filed in federal court by the Securities and Exchange Commission said Starr and others have power of attorney or signatory authority enabling them to control many bank and investment accounts belonging to their clients.
As a result, it said, Starr was able to use some of his clients' funds to purchase a $7.6 million Manhattan apartment. The five-bedroom, six-and-a-half-bath apartment includes a recreation room with a wet bar, a 32-foot granite lap pool and a 1,500 square-foot garden.
Bharara said Stein was not charged in connection with Starr's alleged fraud.
Stein had failed to pay $2.1 million in taxes between 2003 and 2009 for millions of dollars he was paid for working as a consultant for various investment companies, Beranger said.
He said Stein shielded the money from the IRS by creating a shell corporation to move money through, by rapidly moving money among bank accounts and by using third parties' credit cards to pay his personal expenses. Beranger said Stein lied about these matters twice.
Beranger said Stein used some of the proceeds of Starr's investment fraud to rent a luxury property in the posh Long Island community of Bridgehampton. The home, which cost $150,000 for the summer of 2008 alone, was rented by Stein for each summer from 2007 through 2009, he said.
Beranger described Starr as having carried out a Ponzi-like scheme from January 2008 through April by persuading clients to make safe investments with him and then diverting the money to himself and to risky investments in which he, his wife and his close associates, including Stein, held undisclosed financial interests.
Starr testified in 2008 that he warned Snipes that he could get into trouble if he didn't pay his taxes.
Snipes, the star of the "Blade" movies, was convicted in Florida of three counts of failing to file tax returns. He was cleared on fraud and conspiracy charges.
Starr also once advised Stallone. Stallone later sued him, saying Starr advised him to keep his investment in Planet Hollywood restaurants even though Starr told others the chain was headed for bankruptcy. The suit was eventually settled.