Five Star Bank seeks $56.7M from Rochester-area restaurateur accused of check kiting

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Five Star Bank has filed a federal lawsuit accusing a Rochester-area restaurateur of a multimillion-dollar check kiting scheme.

Defendants listed in the case include 10 business entities, plus Katherine Mott and Robert Harris.

According to the complaint, one business, KRM Events LLC is operated by Mott and Harris together, while the others are operated by Mott alone.

Mott “exercised complete domination over each of the (businesses) through sole control over the management and financial affairs of each entity,” according to the complaint.

The list of businesses includes several restaurants and event venues, such as: Monroe’s Restaurant; the Divinity Estate and Chapel LLC, located at the former Colgate Divinity School; The Wintergarden by Monroes, located at the Legacy Building in downtown Rochester; Monroes at Ridgemont LLC, an event venue at the Ridgemont Country Club; and Crescent Beach at the Lake LLC, a restaurant now being renovated.

Five Star Bank (FSB) is represented by attorneys at Barclay Damon LLP. The complaint filed Monday claims the bank suffered an $18.9 million loss.

The lawsuit claims fraud and breach of contract and asks to have a receiver appointed to take over operation of the businesses.

The complaint also accuses the defendants of violations of the Racketeer Influenced and Corrupt Organizations Act and asks for an amount equal to three times the actual damages under 18 U.S.C. Section 1965(c).

Under that statute, an injured business can sue in federal court and receive three times the damages suffered, plus the cost of the suit, and attorney’s fee. Triple damages would total $56.7 million.

The check kiting started in early February, the suit claims. In a “typical kiting transaction,” Mott would write a check on an account at one bank with insufficient funds and deposit the check into a FSB account controlled by one of the companies.

“By taking advantage of the delay inherent in bank reconciliation of deposits (and the widespread practice of honoring checks on the basis of uncollected balances), Mott … was able to temporarily inflate the cash balance in the business accounts at FSB to create the appearance of additional cash in the FSB accounts despite insufficient funds to honor the check,” according to the complaint.

“As a result, transfers and checks written from the FSB accounts that otherwise would have been refused or returned were made and honored by FSB to its detriment,” the suit claims.

Since Feb. 23, 68 checks totaling more than $62 million were deposited into the various business accounts, according to the complaint.

“Mott deposited each of those checks with FSB despite knowing that the check amounts exceeded the balance of the accounts from which they would be drawn,” the suit claims.

She wrote checks on various FSB accounts totaling more than $20.4 million “despite knowing the checks she previously deposited with FSB would ultimately be dishonored for insufficient funds,” according to the complaint.

Some of the checks were eventually dishonored and the FSB accounts were overdrawn by more than $20 million, which was offset by other funds held by Mott, but “FSB has suffered losses of at least $18.9 million as a direct result of Mott and the entity defendants’ check-kiting scheme,” according to the complaint.

Arnie Rothschild, a spokesperson for the defendants, sent a statement to the news media on Tuesday.

“One of Rochester’s most respected restaurant groups was surprised and saddened by Five Star Bank making public allegations concerning what may well be a series of business misunderstandings,” he wrote.

“As has become all too common in today’s world, allegations that are released to the media are seen as facts,” he wrote in the statement.

“As the legal process plays out, we want to assure our customers, those that have events booked with us … that we will continue … 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,” he wrote.

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