Tuesday, July 02, 2002

Erpenbeck scandal ran off Peoples deposits

By Patrick Crowley, pcrowley@enquirer.com
The Cincinnati Enquirer

        COVINGTON — In the weeks following news of the Erpenbeck scandal, Peoples Bank of Northern Kentucky hemorrhaged cash.

        Peoples president Mer Grayson Jr. said Monday that an estimated $25 million in deposits left the Crestview Hills bank after it was revealed in late April that the FBI and other agencies were conducting a fraud investigation involving the bank.

Click here for all Enquirer reports on Erpenbeck Co.
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.
        Employees of Edgewood home builder Erpenbeck Co. were accused of diverting almost $16.8 million in checks made out to other lenders into its accounts at Peoples.

        The bank had about $207 million in deposits — with $6.2 million in cash — on March 31, when it filed a quarterly report with the Federal Deposit Insurance Corp.

        “Customers were concerned, and they reacted,” Mr. Grayson said.

        But about $20 million of those deposits have been replaced with new money coming in, Mr. Grayson said Monday, mainly through a marketing campaign touting certificates of deposit.

        And a branch that opened in mid-May in Highland Heights — the bank's eighth — already has attracted $2 million in deposits, Mr. Grayson said.

        Still, Mr. Grayson contends frequently with questions and speculation that the bank will not be able to weather the financial storm caused by its dealings with the Erpenbeck Co.

        “We hear it, and we deal with it,” Mr. Grayson said. “And I firmly believe we are going to make it.”

        According to federal investigators, bank officials and court documents, Erpenbeck employees took checks at property closings that were made out to other lenders and deposited them into Erpenbeck accounts at Peoples.

        The bank has acknowledged that it is liable for at least some of the $16.8 million allegedly diverted.

        But so are the title companies and other banks that were also involved in the closings, Peoples has said.

        Peoples lawyers have been negotiating with the other parties to see whether an agreement can be reached on paying off the $16.8 million.

        So far, nothing has been worked out, and if a settlement cannot be reached, the case will be resolved in court, lawyers on all sides have said.

        “We'll have the cash to pay our part,” Mr. Grayson said.

        Mr. Grayson also said that aside from the problems with the Erpenbeck Co. — which owes the bank about $7 million in loans that the company has not been paying on — Peoples is strong.

        The bank made money last year and in January, before the Erpenbeck-related problems were uncovered. All 17 members of the bank's board of directors exercised stock options and invested $236,000 each in the bank.

        “We roughly doubled our investments,” said board chairman John Yeager, president of Ashley Development, a builder of mostly upscale homes based in Edgewood.

        “Everyone felt like it was worth the money; and despite all the problems, we still feel that way,” Mr. Yeager said.

        One director, William Remke, CEO of Remke Markets Inc., a Covington-based chain of grocery stores, purchased an additional $1 million worth of stock from a shareholder not on the board.

        Former bank executives John Finnan and Marc Menne also exercised their options and bought more stock, Mr. Yeager said.

        Mr. Finnan, the former president who has been replaced by Mr. Grayson, and Mr. Menne, a senior vice president, were forced to resign in early April after it was discovered that they had been buying homes from former Erpenbeck Co. founder and president Bill Erpenbeck and then leasing the homes back to Erpenbeck.

        The transactions, run through a partnership Mr. Finnan and Mr. Menne operated with their wives and named Jams, were done without the knowledge of the bank board.


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