Bank accusing Crescent Beach owner of fraud wants a receiver. What does that mean?
If the attorneys for Five Star Bank get their wish, a federal judge will put the restaurant businesses owned by Katherine Mott into what is known as a "receivership."
Should a receiver be appointed by the court, the individual would have oversight of the finances and bank accounts of Mott's various businesses, including Monroe's Restaurant in Pittsford and Crescent Beach in Greece, which Mott was reopening, as well as her wedding venue businesses.
The move isn't necessarily punitive. Instead, as Buffalo attorney Terrence Connors said in an interview, an independent receiver can help a business restructure and find a sold financial footing.
"The goal of the receivership is to really get the business back on track," said Connors, who has been involved in civil litigation with court-appointed receivers.
Typically, Connors said, a receiver intervenes when a company is in "financial distress." The receiver "has to look to see whether it's run properly," he said.
Western New York-based Five Star Bank alleges in a lawsuit that Mott and a business partner, Robert Harris, engaged in a check kiting scheme that cost the bank $18.9 million.
The lawsuit alleges that millions were transferred between banks, with money withdrawn from Five Star that wasn't available. A check-kiting scheme involves duping banks by making deposits with checks from other institutions when the money isn't actually available.
Five Star Bank is seeking three times the amount of the alleged damages, a legal tactic common in civil litigation. To receive such an award, the bank would need to convince a judge why it is deserved. The damages amount isn't necessarily three times the alleged loss, but can be based on judicial decisions about the severity of negligence.
Rochester-area lawyer Avik Ganguly said plaintiffs seeking a receiver, as is Five Star Bank in this case, want to recoup the alleged losses back so they need the accused business to get the finances in order. "It's in their interest to see the business do well and not fold," Ganguly said.
This week Five Star Bank said it had also notified law enforcement officials about the allegations. Should that lead to criminal charges — right now the allegations are just claims in a civil lawsuit — the dual cases could be complicated, Ganguly said.
"It's difficult as a criminal defendant also answering a civil lawsuit," he said. For instance, any defenses or responses used in the civil lawsuit could become fodder in a criminal case.
Neither Connors nor Ganguly are involved in the Five Star Bank lawsuit.
In federal court in western New York civil lawsuits are automatically routed into a mediation attempt. That has happened with the Five Star Bank lawsuit but that does not impinge on the request for a receiver, which can go ahead during mediation.
David Rothenberg, an attorney for Mott, declined to comment Wednesday, as did David Burch Jr., an attorney for Five Star Bank.
This article originally appeared on Rochester Democrat and Chronicle: Bank accusing Crescent Beach owner Katherine Mott of fraud wants receiver
