Over a period of only months, Katherine Mott, the owner of Crescent Beach restaurant and other establishments, opened 30 business and personal accounts at Five Star Bank, according to a financial investigator for the bank.
That “rapid succession” of accounts, as well as accounts at other institutions, allowed Mott to embark on a check kiting scheme that ultimately cost Five Star Bank $18.9 million, alleges a court-filed affidavit from Michael Jozwiak, the director of the bank’s financial intelligence unit.
The bank has sued Mott, alleging that she defrauded the bank out of the $18.9 million.
In December, Jozwiak wrote, Mott and others began “rapidly moving funds between Five Star and other financial institutons.
“It is important to note that no actual funds were moving around, as the funds did not actually exist,” the bank official alleges. “Instead, … Mott ‘gamed the system’ by taking advantage of the delays inherent in bank check clearing and processing practices and associated funds availability policies.
“Effectively, she created the impression of funds by rapidly writing and depositing checks back and forth between financial institutions. This is the practice commonly known as ‘check kiting.'”
These allegations could be at the center of a session in federal court Wednesday when the bank argues that a judge should appoint an independent receiver to oversee Mott’s businesses.
The bank maintains that a receiver is necessary to ensure that Mott does not take steps to “disperse, impair, or conceal assets.”
In court papers, David Rothenberg, an attorney for Mott, argued that Five Star Bank has failed to make a legally substantive case for a receiver. Rothenberg maintained that:
- Five Star Bank alleges that Mott committed racketeering acts, but fails to show the multiple acts of alleged wrongdoing necessary for such a claim. The federal court jurisdiction with a decision over receivership is dependent on the claims of racketeering, Rothenberg wrote.
- The appointment of a receiver is, by past precedent, considered an “extraordinary remedy” and Five Star Bank has not shown proof why it is necessary.
- Instead, the legal issue between Five Star and Mott is a money issue and Five Star “seeks a receivership solely to assist in the collection of a potential money judgment” — a threshold short of what is needed for a receiver.
Robert Harris, a business partner of Mott, was also sued by Five Star Bank. His lawyer, Matthew Lembke, also opposes a receiver.
In his court papers, Lembke notes that Harris is only associated with KRM Events, LLC, one of 10 Mott-owned businesses sued by Five Star Bank. “There is not a single allegation against Harris that he engaged in any conduct that was criminal in nature,” Lembke wrote.
Since February, the lawsuit alleges, Mott deposited more than $62 million in 68 checks at Five Star, while then transferring out about $20 million that she knew could not be covered.
In court papers, lawyers for the bank say they have made a solid case for the appointment of a receiver.
Among Mott’s businesses are Monroe’s Restaurant in Pittsford and two wedding venues, The Wintergarden and The Divinity Estate and Chapel.
Last year she also announced plans to purchase the Crescent Beach, saying she planned to gut and remodel the restaurant and also build a 400-person wedding venue on the parcel. Construction has been underway.
(Includes reporting by staff writer Tracy Schuhmacher)
Source: Crescent Beach owner set up multiple accounts for fraud, bank alleges
