Sunday, May 19, 2002

Erpenbeck insider tells story


Former manager says daughter is among buyers without clear title

By Patrick Crowley pcrowley@enquirer.com
The Cincinnati Enquirer

        FORT MITCHELL — Mick Kennedy, the former head of single-family home construction at the Erpenbeck Co., says he had no idea of the alleged financial improprieties taking place at the troubled Edgewood firm.

        Mr. Kennedy, making his first public statements on the scandal, said that after learning about the company's problems with mortgages and diverted checks, he and his two sons abruptly left the firm. He has since cooperated with federal authorities investigating the company for possible bank fraud.

STORY ARCHIVE
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INVESTIGATION
If you have any additional information on the business dealings of the Erpenbeck Co. or Peoples Bank of Northern Kentucky - or on the involvement of any parties not yet identified in our coverage - please email Enquirer business reporter James McNair at jmcnair@enquirer.com or Kentucky Enquirer reporter Patrick Crowley at pcrowley@enquirer.com.
        The end came when he discovered that one of his children, who owns an Erpenbeck & Kennedy house, was among the 200 or so customers that don't have a clear title to their homes.

        “We worked with this man, and he did that to a family member. That's when I couldn't take it anymore,” Mr. Kennedy said.

        “Once we found out what was going on, we got the hell out of there,” said Mr. Kennedy, 58, who said he left the firm in early April, close to the time when A. William “Bill” Erpenbeck resigned from the company he founded in 1993.

        “And the whole time we were there, we acted in good faith,” Mr. Kennedy said in a recent hour-long interview that also included his sons, Chris, 32, and Matt, 31.

        The Kennedys offered an inside look at how the troubled home building firm was operating as financial problems mounted. The Erpenbeck fiasco has triggered dozens of lawsuits by banks and contractors who are collectively owed millions by the home builder.

        Mr. Kennedy, a veteran Greater Cincinnati home builder, and Bill Erpenbeck formed Erpenbeck & Kennedy Builders in 1996 to develop single-family homes. Chris Kennedy oversaw sales. Matt Kennedy supervised construction.

        Condominiums were developed by Mr. Erpenbeck's brother, Jeff Erpenbeck, who has taken over operations of the Erpenbeck Co. After about 40 employees were laid off two weeks ago, only about 10 workers remain. Jeff Erpenbeck is attempting a restructuring to keep the company solvent.

        Mick Kennedy described his role as a manager and employee at the company, not one of its owners and not a partner with Mr. Erpenbeck. His sons were also employees, Mr. Kennedy said.

        The family decided to grant interviews to dispel the notion that they are still a part of the Erpenbeck Co.

        and because they are being named in the lawsuits and liens filed against Erpenbeck.

        “We started seeing Mick's name in the paper, and we were worried about the public perception,” Matt Kennedy said. “We wanted to get the truth out.”

        Debbie Quinn, who operates Quinn Electric in Erlanger with her husband, Mike, is one of dozens of area contractors owed money by the Erpenbeck Co.

        The Quinns filed a $16,260 lien in February against the Grand Cypress condo project in Clermont County. Mrs. Quinn said her company is owed thousands of dollars more, but she did not want to reveal the amount.

        While she has her problems with the Erpenbecks, Mrs. Quinn said the Kennedys did excellent work.

        “Mick Kennedy builds houses like he would live in them,” Mrs. Quinn said. “I would definitely work with him again.”

        Among the nearly 400 houses the Kennedys built and worked on while affiliated with the Erpenbeck Co. was a $380,000 house in Boone County's upscale Triple Crown Country Club development.

        Richard and Lynne Boynton put $35,000 down on the home, but work stopped short of completion several weeks ago. The Erpenbeck Co. apparently does not have the money to pay subcontractors to finish the project.

        “Mick Kennedy is a nice guy,” Mrs. Boynton said. “When work was going on, he was always right there whenever we needed anything.”

        But once the worked slowed and then stopped, Mick Kennedy would no longer return phone calls, Mrs. Boynton said.

        “We were left out, not knowing anything,” Mrs. Boynton said.

        Mick Kennedy said he was sorry about not returning the Boyntons' calls, but he had been advised by his lawyer not to talk about any situation with home buyers because of pending lawsuits.

        The Boyntons abandoned any thoughts of moving into the Triple Crown home. Instead, they moved Friday into a home in Pierce Township in Clermont County.

        Since leaving the Erpenbecks, the Kennedys have started a new home-building business based here called Kennedy Homes. They have $3 million in contracts to build new homes in Fort Mitchell, Triple Crown in Boone County and other Northern Kentucky communities.

        “This is our fresh start,” Matt Kennedy said.

        The FBI and the U.S. Attorney's office in Cincinnati are probing allegations of bank fraud involving the Erpenbeck Co. No federal charges have been filed, but Bill Erpenbeck has been charged in Boone County for writing a bad check to a subcontractor.

        Mick Kennedy said he has been interviewed by an FBI agent, but he would not say what he was asked or what information he provided.

        According to officials at Peoples Bank of Northern Kentucky in Crestview Hills, Erpenbeck Co. employees deposited roughly 200 checks in the past year totaling about $15 million that were made out to various lenders.

        The checks were cut by title companies at property closings and should have gone to the banks that made the construction loans on the houses. Instead, $15 million ended up in Erpenbeck Co. accounts at Peoples.

        The result has been that at least 200 homeowners do not hold clear title to their houses and condos. Many are suing, and Cincinnati lawyer Stan Chesley is seeking to pursue a class-action suit against Peoples Bank in Boone Circuit Court.

        One of those buyers without a clear title is Mick Kennedy's daughter.

        “That was pretty much the last straw,” Mick Kennedy said, who did not want to name his daughter publicly but confirmed that she lives in a $150,000 Taylor Mill home built by Erpenbeck & Kennedy.

        Chris Kennedy, who handled home sales for Erpenbeck & Kennedy, said he had “no idea” about the flow of checks into Erpenbeck accounts at Peoples Bank.

        “My job was to approve (sales) contracts,” Chris Kennedy said. “And I would never have approved a contract if I knew what was going on ... with the checks.”

        Settlement statements signed at closings always appeared prop er, he said.

        “The statements showed the mortgage, the closing costs, things of that nature,” Chris Kennedy said. “And it showed that checks were disbursed and that the construction mortgage had been satisfied.”

        Neither Bill Erpenbeck nor Jeff Erpenbeck have commented on the Kennedy's role in the company. In an interview shortly after news of the scandal broke, Jeff Erpenbeck expressed similar comments as the Kennedys — that he was unaware of the problems with the checks and mortgages.

        Chris Kennedy said that for the first three to four years of his family's association with the Erpenbecks, the business flourished, with the Erpenbeck Co. growing to the third-largest Greater Cincinnati home builder with sales of $84 million in 2001.

        But the business began to slow in the last two years, a financial situation that the Kennedys said did not go unnoticed.

        “We knew there were financial problems, that business had slowed,” Chris Kennedy said. “But we didn't know the true reasons why things were so slow. We were completely in the dark.”

        That is because Mr. Erpenbeck handled all of the financial activity — including receiving, tracking and paying bills — at the firm, Mick Kennedy said.

        “Bill oversaw every aspect of accounts payable and accounts receivable, whether it was $2 or $20,000,” Mick Kennedy said. “That was his edict.”

        While in the company's Edgewood office, Mr. Erpenbeck carried around a long list of contractors who were owed money, Matt Kennedy said.

        “I would get a call from my superintendent out of a job site. He would tell me he couldn't get a load of sand,” Matt Kennedy said. “I would call the supply house and ask for a load of sand. They said, "I'm sorry, you guys are on hold right now.'”

        After telling Bill Erpenbeck about the situation, Mr. Erpenbeck would scan his list of contractors and then determine whether he could afford to pay for the sand that week, Matt Kennedy said.

        “You can see why construction slowed,” he said. “We couldn't get subcontractors to the jobs. And that was happening all the time.”

SMITH AMOS: Is my money really safe at Peoples?



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