Sunday, May 05, 2002

Banker's fall dismays admirers




By Patrick Crowley pcrowley@enquirer.com
and James McNair jmcnair@enquirer.com

The Cincinnati Enquirer

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Finnan
        CRESTVIEW HILLS — Friends say banker John Finnan would do anything to help or promote his adopted home of Northern Kentucky. He even once walked into a woman's restroom in the State Capitol to chase a female state lawmaker he wanted to lobby on behalf of the Northern Kentucky Convention Center.

        “John is a true community leader who could always be counted on,” said Gary Toebben, president of the Northern Kentucky Chamber of Commerce. “When you needed him for something — a donation, his help on a project, his time — he was always there for just about any organization that asked.”

        Mr. Finnan, 48, may now be asking friends for some of the support he has been so free to give others.

        Monday night, Mr. Finnan agreed to step down as president and chief executive officer of Peoples Bank of Northern Kentucky, the $220 million lending institution he founded.

        Marc Menne, the bank's executive vice president who oversaw commercial lending, also resigned.

INVESTIGATION
    If you have any information about the investigation of The Erpenbeck Co. or the inner workings or business practices of the company, please contact Enquirer staff writer James McNair at 513-768-8498 or at jmcnair@enquirer.com.
        Mr. Finnan joined with others to start Peoples Bank in 1992. A native of Richmond, Ind., he received degrees at Ball State University and Miami University and worked at the old Peoples Liberty Bank and Star Bank before then.

        “This bank is a creation of John Finnan,” said newly installed Peoples president Merwin Grayson said last week. “He and Marc built a following. People came here because of them.”

        The lives of the two executives are intertwined with A. William “Bill” Erpenbeck and his Edgewood home building firm, the Erpenbeck Co., which is being investigated by the FBI for possible bank fraud.

        Mr. Finnan lives on the same street — Legends Way — as Mr. Erpenbeck. The neighborhood, which was developed by the Erpenbeck Co., features luxury homes, some of which cost more than $1 million. And Mr. Menne was a frequent guest at Mr. Erpenbeck's lavish parties.

        Mr. Erpenbeck, a Northern Kentucky University alumnus who is on the NKU Board of Regents, was working with Mr. Finnan to help the Highland Heights school sell corporate naming rights to its planned arena.

Business links

        But the primary connections among the three men were business ties — including a link that only recently became public.

        John Yeager, a Peoples board member, said the Erpenbeck Co. owes the bank about $6 million, though he said the building company put up real estate and homes as collateral.

        Other banks, including Provident and Bank One, are suing the Erpenbeck Co. — now being run by Bill Erpenbeck's brother, Jeff — to recover nearly $14 million in delinquent loans. Dozens of contractors have come forward to say they haven't been paid by the company. Other banks, including Firstar, have also acknowledged lending money to the Erpenbeck Co.

        But the loans Peoples made to Erpenbeck may have had less to do with resignations of Mr. Finnan and Mr. Menne than did Jams Properties, a company whose name is formed by the first initials of the two bankers and their wives.

        Mr. Finnan and Mr. Menne ran afoul of the bank's 17 other directors by buying real estate, mostly model homes, from Mr. Erpenbeck without the board's knowledge.

        Working through Jams, the two ex-bank officers didn't finance the purchases through Peoples. They obtained loans from small banks in Corbin, Ky., and Eaton, Ohio., for a buying spree that began in 1997 and led to their current portfolio of 18 properties.

        Home builders sometimes sell and then lease back their model homes to cut their debt and help their cash flow. But usually they are sold to companies that specialize in buying model homes, improving them and reselling them at a profit.

        While it's unusual for bankers to assume that role, Mr. Finnan and Mr. Menne's company may have provided an important pressure-relief valve for a builder coming under mounting financial fire. Jams' 18 properties were worth $4.8 million in sales to Mr. Erpenbeck's companies.

        The home-buying venture essentially put Mr. Finnan and Mr. Menne in business with Mr. Erpenbeck, the kind of tie that could appear to compromise a banker's loyalty to his bank.

        It also left Jams exposed to some of the same kinds of problems confronting Erpenbeck Co.

        For example, at the Oakwood Lakes condo project in Mason, where Jams owns two model homes, the homeowners' association has been pressing Jams for nearly $10,000 in overdue dues, said home owner Paul Doe. Jams' response? That Erpenbeck is responsible for the dues.

"Best thing to do'

        Mr. Menne did not return calls for comment. Mr. Finnan said he and Mr. Menne did nothing wrong by having a separate business relationship with Mr. Erpenbeck.

        “But in the best interest of the bank and the bank's future success, we felt our resigning was the best thing to do,” Mr. Finnan said last week.

        “We've loved our association with the people of Peoples Bank. I have the greatest admiration for each and every one of the board members. Peoples Bank is strong and will continue to be strong,” he said.

        Mr. Finnan and Mr. Menne were not forced to resign, Mr. Yeager said. But he acknowledged that the Jams relationship gave the appearance of a conflict of interest.

        “They had become part of the story, they were part of the controversy,” Mr. Yeager said. “Their names kept coming up and it made them ineffective and very, very difficult for them to do their jobs.”

        Mr. Grayson defended Mr. Finnan and Mr. Menne, saying they made “mistakes” and “errors of judgment” but ultimately “were victims of the Erpenbeck mess.”

        Mr. Grayson, 60, who retired in 2001 as Huntington Bank's regional president with nearly 40 years experience in the Northern Kentucky banking business, was hired Tuesday to take over the bank as president and CEO.

        While some board members have expressed disappointment and anger that they were unaware of Jams, Mr. Yeager, a developer, said it's not unusual for home builders to sell their model homes and then lease them back.

        “I do it,” Mr. Yeager said during a joint interview Wednesday with Mr. Grayson.

        “But you're not a bank president,” Mr. Grayson quickly added.

        Federal and state regulators continue to examine Peoples records and the bank's relationship with Mr. Erpenbeck. Investiga tors and auditors from the FBI, the Federal Deposit Insurance Corp. — or FDIC, the agency that insures bank deposits — and the Kentucky Department of Financial Institutions have scoured documents related to Mr. Erpenbeck's business dealings with the bank and to the accounts at Peoples held by the Erpenbeck Co.

        The FBI has confirmed its investigation focuses on alleged bank fraud involving the Erpenbeck Co. It won't comment on the probe. No charges have been filed. Peoples has confirmed that Mr. Erpenbeck allegedly cashed checks made out to banks that he received at property closings and then deposited the money into his account.

        Mr. Yeager acknowledged in an interview last week that the bank will not come out of the check cashing situation “scot-free.”

        Anticipating legal problems, Peoples has hired the high-powered Louisville-based law firm of Greenbaum, Doll & McDonald. The firm has a Covington office run by well-known Erlanger lawyer Bill Robinson, but the firm's experts in banking law are handling Peoples.

        Title company lawyers, customers and others involved in the situation say Mr. Finnan and Mr. Menne may eventually have to answer questions about their business relationship with Mr. Erpenbeck and how he was able to pass $15 million in checks not made out to him at the bank.

Thinking about move?

        During an interview last week, Mr. Finnan would not discuss his future plans. But friends say he has told them that he, his wife Susan and their two sons may move out of Northern Kentucky, a place where Mr. Finnan had become a visible community leader.

        His departure from the area would leave a void in civic and political life. He is, for example, the chairman of The Metropolitan Club — a private club located atop Covington's RiverCenter.

        As the first head of the Northern Kentucky Consensus Committee — a group of business, political and civic leaders that lobbies Frankfort for projects and legislation benefiting the region — Mr. Finnan helped secure $38 million for the Northern Kentucky Convention Center in 1996.

        It was during that effort that he briefly — and mistakenly stepped — into a woman's restroom while lobbying state Sen. Katie Stine, R-Fort Thomas, for her vote.

        Over the years, he also pushed for other projects, including the $4.3 million juvenile detention center in Newport and the $38 million science building under construction at NKU.

        “This situation is just unbelievable,” said Jim Willman, who served on the Northern Kentucky Convention and Visitors Bureau Board with Mr. Finnan.

        “There is nothing John wouldn't do to help Northern Kentucky,” Mr. Willman said. “This is very, very difficult to see a guy like that fall. It's an absolute shame.”

       



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