diff --git a/compiler/frontend/src/org/jetbrains/kotlin/psi/JetTypeProjection.java b/compiler/frontend/src/org/jetbrains/kotlin/psi/JetTypeProjection.java
index b733f354f83..8756c4490cb 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/psi/JetTypeProjection.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/psi/JetTypeProjection.java
@@ -64,6 +64,11 @@ public class JetTypeProjection extends JetModifierListOwnerStub<KotlinTypeProjec
 
     @Nullable
     public ASTNode getProjectionNode() {
+        PsiElement star = findChildByType(JetTokens.MUL);
+        if (star != null) {
+            return star.getNode();
+        }
+
         JetModifierList modifierList = getModifierList();
         if (modifierList != null) {
             ASTNode node = modifierList.getModifierNode(JetTokens.IN_KEYWORD);
@@ -75,10 +80,6 @@ public class JetTypeProjection extends JetModifierListOwnerStub<KotlinTypeProjec
                 return node;
             }
         }
-        PsiElement star = findChildByType(JetTokens.MUL);
-        if (star != null) {
-            return star.getNode();
-        }
 
         return null;
     }
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeResolver.kt b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeResolver.kt
index b38b50486fc..9767e1221c1 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeResolver.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeResolver.kt
@@ -16,7 +16,6 @@
 
 package org.jetbrains.kotlin.resolve
 
-import org.jetbrains.kotlin.builtins.KotlinBuiltIns
 import org.jetbrains.kotlin.context.TypeLazinessToken
 import org.jetbrains.kotlin.descriptors.ClassDescriptor
 import org.jetbrains.kotlin.descriptors.ClassifierDescriptor
@@ -24,6 +23,7 @@ import org.jetbrains.kotlin.descriptors.ModuleDescriptor
 import org.jetbrains.kotlin.descriptors.TypeParameterDescriptor
 import org.jetbrains.kotlin.descriptors.annotations.Annotations
 import org.jetbrains.kotlin.diagnostics.Errors.*
+import org.jetbrains.kotlin.lexer.JetTokens
 import org.jetbrains.kotlin.psi.*
 import org.jetbrains.kotlin.psi.codeFragmentUtil.debugTypeInfo
 import org.jetbrains.kotlin.psi.debugText.getDebugText
@@ -272,6 +272,8 @@ public class TypeResolver(
             val projectionKind = argumentElement.getProjectionKind()
             ModifiersChecker.checkIncompatibleVarianceModifiers(argumentElement.getModifierList(), c.trace)
             if (projectionKind == JetProjectionKind.STAR) {
+                ModifiersChecker.reportIllegalModifiers(argumentElement.getModifierList(), listOf(JetTokens.IN_KEYWORD, JetTokens.OUT_KEYWORD), c.trace)
+
                 val parameters = constructor.getParameters()
                 if (parameters.size() > i) {
                     val parameterDescriptor = parameters[i]
@@ -282,8 +284,7 @@ public class TypeResolver(
                 }
             }
             else {
-                // TODO : handle the Foo<in *> case
-                val type = resolveType(c.noBareTypes(), argumentElement.getTypeReference())
+                val type = resolveType(c.noBareTypes(), argumentElement.getTypeReference()!!)
                 val kind = resolveProjectionKind(projectionKind)
                 if (constructor.getParameters().size() > i) {
                     val parameterDescriptor = constructor.getParameters()[i]
diff --git a/compiler/testData/diagnostics/testsWithStdLib/instar.kt b/compiler/testData/diagnostics/testsWithStdLib/instar.kt
new file mode 100644
index 00000000000..816e423619f
--- /dev/null
+++ b/compiler/testData/diagnostics/testsWithStdLib/instar.kt
@@ -0,0 +1,11 @@
+// Reproduces exception in TypeResolver.kt: EA-66870
+
+import java.util.ArrayList
+
+abstract class J {
+    public abstract fun <T : Collection<S>, S : List<<!ILLEGAL_MODIFIER!>in<!> *>> foo(x: T)
+    fun bar() {
+        val s = ArrayList<ArrayList<Int>>()
+        foo(s)
+    }
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/testsWithStdLib/instar.txt b/compiler/testData/diagnostics/testsWithStdLib/instar.txt
new file mode 100644
index 00000000000..8c6876abf9d
--- /dev/null
+++ b/compiler/testData/diagnostics/testsWithStdLib/instar.txt
@@ -0,0 +1,10 @@
+package
+
+internal abstract class J {
+    public constructor J()
+    internal final fun bar(): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public abstract fun </*0*/ T : kotlin.Collection<S>, /*1*/ S : kotlin.List<*>> foo(/*0*/ x: T): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/testData/diagnostics/testsWithStdLib/outstar.kt b/compiler/testData/diagnostics/testsWithStdLib/outstar.kt
new file mode 100644
index 00000000000..149aa4df681
--- /dev/null
+++ b/compiler/testData/diagnostics/testsWithStdLib/outstar.kt
@@ -0,0 +1,11 @@
+// Reproduces exception in TypeResolver.kt: EA-66870
+
+import java.util.ArrayList
+
+abstract class J {
+    public abstract fun <T : Collection<S>, S : List<<!ILLEGAL_MODIFIER!>out<!> *>> foo(x: T)
+    fun bar() {
+        val s = ArrayList<ArrayList<Int>>()
+        foo(s)
+    }
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/testsWithStdLib/outstar.txt b/compiler/testData/diagnostics/testsWithStdLib/outstar.txt
new file mode 100644
index 00000000000..8c6876abf9d
--- /dev/null
+++ b/compiler/testData/diagnostics/testsWithStdLib/outstar.txt
@@ -0,0 +1,10 @@
+package
+
+internal abstract class J {
+    public constructor J()
+    internal final fun bar(): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public abstract fun </*0*/ T : kotlin.Collection<S>, /*1*/ S : kotlin.List<*>> foo(/*0*/ x: T): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/JetDiagnosticsTestWithStdLibGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/JetDiagnosticsTestWithStdLibGenerated.java
index d93a9e131f3..60be0d73c8a 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/JetDiagnosticsTestWithStdLibGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/JetDiagnosticsTestWithStdLibGenerated.java
@@ -35,6 +35,18 @@ public class JetDiagnosticsTestWithStdLibGenerated extends AbstractJetDiagnostic
         JetTestUtils.assertAllTestsPresentByMetadata(this.getClass(), new File("compiler/testData/diagnostics/testsWithStdLib"), Pattern.compile("^(.+)\\.kt$"), true);
     }
 
+    @TestMetadata("instar.kt")
+    public void testInstar() throws Exception {
+        String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/testsWithStdLib/instar.kt");
+        doTest(fileName);
+    }
+
+    @TestMetadata("outstar.kt")
+    public void testOutstar() throws Exception {
+        String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/testsWithStdLib/outstar.kt");
+        doTest(fileName);
+    }
+
     @TestMetadata("compiler/testData/diagnostics/testsWithStdLib/annotations")
     @TestDataPath("$PROJECT_ROOT")
     @RunWith(JUnit3RunnerWithInners.class)