Five Star Bank says receiver in Mott case fell short in duties

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Five Star Bank says the further reimbursement requested by the receiver in Katherine Mott-Formicola‘s civil check-kiting case cannot be justified, essentially because he has already been paid well for services that, in the end, provided little benefit to the financial institution.

The bank contends that Mark R. Kercher, the court-appointed receiver, failed to use all measures at his disposal to trace or recover any of the $18.9 million in funds fraudulently obtained by Mott-Formicola and co-defendants between December 2022 and March 2024.

In a letter to U.S. District Court Senior Judge Frank P. Geraci Jr., the bank claims Kercher never used subpoena powers granted by the court, or launched a forensic examination the bank said it would have funded, to determine the whereabouts of the money.

Instead, Kercher “elected to exclusively focus on liquidating the entity defendants assets without regard for the remainder of his court-ordered obligations.”

As a result, the letter says, there has been no recovery for the victim in the case, Five Star Bank.

The letter was filed in U.S. District Court in the Western District of New York on Thursday. It came three days after Kercher entered his final receiver report that documented his activity over the past two years, his conclusions about the case and a final request for payment for his services and that of his legal counsel (a combined $40,164.78).

Kercher’s report said that by the time he was appointed receiver, “the trail was already cold, and was further complicated by thousands of interbank transactions, numbering in the millions of dollars occurring over this 15-month period.”

He went on to say that the actions he took during the receivership “had little bearing on the ultimate mitigation of those losses. The opportunity for detection and mitigation existed during the 15 months immediately prior to my appointment. By the time I was appointed, there was little to be done but try to right-size the businesses and try to preserve the status quo while the litigation unfolded.”

However, Five Star Bank, through attorney James P. Milbrand of Barclay Damon LLP, said the report was “short on information and long on invective and baseless speculation.”

In “falsely portraying the bank in a negative light” Kercher wanted to embarrass Five Star after it successfully opposed his earlier motion for priority status in the payment pecking order, the letter said.

Milbrand added that Kercher devoted approximately seven of the 11 report pages to unsolicited and unfounded opinions about the bank, the bank’s legal team and the state of banking in general — and now wants to be paid for it.

Five Star contends that while the report “was apparently cathartic for the receiver, he cannot now reasonably seek compensation (from the little remaining Mott entity assets) for what amounts to a personal outburst.” Milbrand’s letter added that the “febrile commentary and baseless conclusions” were “masquerading” as findings of an investigation Kercher never conducted.

“Ultimately, no invective and recriminations can conceal the unbridgeable gap between the scope of the receiver’s mandate (to trace and protect Five Star Bank’s interest in the stolen funds) and his actual performance,” Milbrand wrote.

Mott-Formicola pleaded guilty in December of 2024 to financial institution fraud and money laundering. Her sentencing, now scheduled for April 30, already has been postponed three times and her lawyer has asked for another three-month postponement while what is believed to be cooperation with federal prosecutors continues.

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