Five Star and other banks were slow to detect Kathy Mott fraud, receiver says

Still no Crescent Beach buyers

Banks were slow to detect Kathy Mott’s multi-million dollar check-kiting fraud, allowing the restaurateur’s crimes to continue for over a year, a court-reported receiver said in a report this week.

“As confirmed in, among other places, the (Mott) Plea Agreement, the check kiting occurred on a daily basis for 15 months,” receiver Mark Kercher wrote in a report filed Monday. “The average size of each transaction (check deposited/check drawn), by my estimate, grew from roughly $400,000 to over $900,000 and the total daily float grew from $10 million to $22 million.

“On a daily basis, deposits (and withdrawals) were collectively greater than the annual revenues of the underlying businesses. This ongoing fraud was never detected by any system of internal control employed by any financial institution throughout the fifteen-month duration.”

(The “float” is the time delay period with banking that allows kiting. To do so, check kiters are able to make it appear that they have more money in their accounts than they truly do. Here is a D&C story I wrote on the crimes: Crescent Beach owner accused of ‘check kiting’ scheme. What is check kiting? )

That delay from banks in detecting the fraud made efforts to track where the millions may have gone virtually impossible, Kercher wrote. Five Star Bank and its March 2024 lawsuit against Mott were the first public acknowledgments of the fraud but bank officials also have been unable to follow the trail of the stolen loot.

“Thus, when I began my work, the trail was already cold, and was further complicated by thousands of interbank transactions, numbering in hundreds of millions of dollars occurring over this 15-month span,” Kercher wrote.

Kercher said that he was surprised when first appointed receiver that a check-kiting scheme could reach the scope alleged by Five Star Bank.