Mott contends some Five Star employees were complicit in alleged illegal banking practices

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Nearly six months after Five Star Bank accused restaurateur Katherine Mott of relying on an elaborate check-kiting scheme to operate her businesses, the defendant contends several bank employees provided her with guidance on how to avoid the scrutiny of regulators.

Mott also  alleges that between 2023 and February of 2024, she paid a former Five Star bank branch manager more than $200,000, believing at first that it was a loan so he could buy a house. She now views the money as “an inducement to have him help her without interference” from the Five Star Bank compliance department or the bank’s “back office.”

The claims were made in an affidavit filed Friday in federal court that also alleges:

• Then-bank manager Alan Ng “instructed Mott never to deposit checks in excess of $999,999,” because larger amounts would draw scrutiny;

• Ng, with whom Mott had developed first a banking relationship and then a “social relationship,” shared one spreadsheet showing incoming and outgoing checks that would throw up red flags, and another spreadsheet that questioned the frequency of high-dollar check activity, yet a week later it was “banking as usual.”

• Employees at Five Star’s Brighton branch allowed her to conduct banking activity before the bank opened to the public.

• She paid Ng approximately $200,000 in cash and $7,000 in goods and services for home repairs “as an inducement,” and that he told her to only withdraw the cash — paid weekly to him in amounts between $3,000 and $5,000 — from Mott’s Kinecta Federal Credit Union accounts.

• On multiple occasions, Ng told Mott “In sum and substance, that the check deposits were making plaintiff’s balance sheets look great.”

• Ng on multiple occasions told Mott that any negative balance resulting from the collapse of the banking activity could be turned into a loan from Five Star Bank.

» Other employees appeared to help Mott continue banking with the plaintiff, and that bank territory manager Kurt Dambaugh “assured Mott that no checks would bounce and that her accounts would be monitored to make sure all her deposits were ‘pushed through.’ ”

The claims were part of a filing by Mott’s attorneys, David and Michael Rothenberg of Rothenberg Law, asking that Five Star Bank’s motion for attachment be denied.

Five Star Bank is suing Mott and business partner Robert Harris, along with 10 business entities, alleging the check kiting led to a loss of $18.9 million. The bank now has asked that the court grant attachment so assets may be seized.

But Mott’s defense team contends the U.S. District Court for the Western District of New York already granted the bank-requested remedy for the case when Judge Frank P. Geraci Jr. appointed a receiver to handle all financial-related activities within Mott’s businesses.

Mott operates several restaurants and event spaces, including Monroe’s, Divinity Estate & Chapel, The Wintergarden and Rare 3001. She bought Crescent Beach Hotel last year and had planned to reopen the once-iconic beachside venue in Greece this spring. The lawsuit curtailed renovations.

Receiver Mark R. Kercher has been performing what he early in the case termed “financial triage.” A recent update for the court showed that all bills are being paid and funds from the sale of a Mott residential property have helped pay creditors.

Mott’s lawyers contend in their Friday filing that granting attachment would be giving Five Star “a second bite at the ‘provisional’ apple” simply because the bank now is “apparently dissatisfied with the receivership it sought.”

The filing contends that the claims by Mott “are undisputed, and the knowledge and conduct of Alan Ng, Kurt Dambaugh, ‘Zack (no last name given in court papers), ‘Marty (no last name given)’ and others in the ‘back office’ is imputed to plaintiff for purposes of determining the applicability of the in pari delicto defense.”

That Latin term means “in equal fault” and Mott’s lawyers contend that Five Star was culpable through the actions of employees and thus cannot benefit from those wrongdoings by the granting of the attachment request.

“None of the plaintiff’s purported evidence contests Mott’s testimony, which confirms that plaintiff was aware of, encouraged and benefited from all of the banking activity at issue,” according to Friday’s filing, which was signed by David Rothenberg.

The filing goes on to allege that Five Star Bank is “now trying to prevent the receiver from doing the job for which he was appointed by the court. In doing so, plaintiff seeks to gain priority of payment over other creditors, this despite its own bad conduct as detailed above, not to mention the lack of any judgment.”

David Rothenberg declined to comment on Monday afternoon.

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