A federal judge has ordered that a receiver be appointed to oversee the financial dealings of a local restaurant and venue operator accused of carrying out a multi-million-dollar fraud scheme.
The case involves Katherine Mott, who owns Crescent Beach and operates several wedding venues in the area.
She will continue to do so under the order entered last week in U.S. District Court. The receiver, though, will oversee and control the financial affairs of each property or business entity, “including control over all cash, financial assets, and books and records,” Judge Frank Geraci Jr. wrote in his order.
Five Star Bank sued Mott last month claiming that she had been passing checks between numerous business accounts at Five Star and elsewhere, artificially inflating balances then withdrawing the money before the fraud could be detected. It’s a scheme called check-kiting. And Five Star put its losses at $18.9 million.
Mott, through a spokesperson, has argued this "may well be a series of business misunderstandings."
Geraci, however, found that Five Star has sufficiently demonstrated and documented its allegations and – the order reads - “is likely to succeed in its fraud claim.”
The bank alleges that on Feb. 22, Mott deposited 42 checks totaling $20.9 million drawn on accounts at Five Star into accounts at Kinecta Federal Credit Union. Then a day later wrote 21 checks on another Kinecta account totaling roughly the same amount and deposited those back into Five Star. That account had been closed, but Five Star credited the deposits and used that to pay the earlier 42 checks.
That round-robin allegedly continued through a second and third round of checks, and was not discovered until March 5, at which the Five Star accounts were overdrawn by approximately $20.7 million. Mott allegedly offset that with some other funds, reducing the overdrawn amount to $18.9 million, which it remains today.
“As it currently stands, the location of the $18.9 million owed to Plaintiff is unknown,” Geraci wrote in the order. “Whether that money was used among the businesses ... or diverted to privately-held accounts outside those businesses remains to be discovered.”
A receiver will be able to trace those funds and identify where the money is being held, if it still exists. If the businesses operate solely on future revenue, and the other money is not found, those future monies will be needed to satisfy the debts owed.
"Appointing a receiver to perform an accounting, trace the withdrawn funds, and to protect those future revenue streams is necessary to ensure that (Five Star) has a means of recovery,” Geraci wrote.
