Five Star Bank accuses Rochester-area restaurant owner of $18.9M fraud

Buffalo News (NY)

Mar. 12—Five Star Bank in a federal lawsuit accused a Rochester-area restaurateur of engaging in a "check-kiting" scheme that defrauded the bank of $18.9 million.

The bank accuses Katherine Mott of being the driving force behind the scheme. She is identified in the suit as the owner of several businesses, including restaurants and wedding venues.

The Wyoming County-based bank, which serves upstate markets including Buffalo and Rochester, disclosed in a regulatory filing Monday that it had been defrauded by a business customer and was seeking to recoup those funds. The bank said it discovered the fraud as part of routine fraud monitoring.

The suit also lists Robert Harris as a defendant, but targets Mott as having "sole control over the management and financial affairs of each entity."

The suit claims Mott "perpetrated a fraudulent check-kiting scheme in order to artificially inflate the balance of the various entity defendants' bank accounts with (Five Star) and create an artificial source of funding."

Mott received attention in Rochester-area media last fall when she bought the Crescent Beach restaurant, with plans to reopen it this May. The restaurant had been closed since 2017.

Mott's other business holdings include the Wintergarden in Rochester, Monroe's in Pittsford, and the Divinity Estate and Chapel in Rochester. The suit requests a court-appointed receiver be put in charge of Mott's business operations.

Mott could not be reached to comment. But a statement released by Arnie Rothschild, a spokesman for her businesses, said the restaurant group was "was surprised and saddened by Five Star Bank making public allegations concerning what may well be a series of business misunderstandings."

"As the legal process plays out, we want to assure our customers, those that have events booked with us, and the community we love and serve that we will continue, as we always have, to be who we always have been: great employers, community partners, and a company that has always valued its customers as they deserve to be treated," the statement said.

The size of the fraudulent activity is significant for a bank the size of Five Star. The estimated impact of the fraud is significantly more than the $9.8 million in profits that the bank reported during the fourth quarter of last year. And it exceeds the $13.7 million in credit losses from bad loans that it absorbed during all of last year.

The stock of Five Star's parent company, Financial Institutions, has dropped by more than 4% since the fraud was disclosed.

Five Star said it is working with the U.S. Attorney's Office on the case.

"Based on the bank's review of the circumstances of the fraudulent activity, the bank believes this incident is an isolated occurrence involving a single, deposit-only business relationship," the bank said.

Five Star said it remains well-capitalized and that the financial impact of the fraud could be reduced, depending on how much money can be recovered.

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