By James McNair
The Cincinnati Enquirer

Ex-builder Bill Erpenbeck has promised millions in restitution and help in prosecuting others.

Former Northern Kentucky home builder Bill Erpenbeck pleaded guilty Wednesday to a single count of federal bank fraud after agreeing to a plea deal that calls for him to help convict accomplices and repay at least $27 million in damages - then spend up to 30 years in prison.

The 42-year-old, third-generation builder, now a resident of Fort Myers, Fla., appeared before U.S. District Judge Susan Dlott in Cincinnati and pleaded guilty to defrauding a federally insured bank. The government said he defrauded eight banks out of $33.9 million during a three-year scheme of diverting home-sale proceeds into his company's accounts.

"Erpenbeck's scheme involved about 295 transactions," said Gregory Lockhart, U.S. attorney for the Southern District of Ohio. Victims included 10 federally insured construction lenders, about 32 other federally insured financial institutions that loaned money to and took mortgages from people who bought individual properties from the company "and approximately 260 individual victims who bought or otherwise acquired individual properties from the company," Lockhart said.

Wearing a black suit and standing with his hands folded in front of him, Erpenbeck answered the judge's questions tersely and gave no statements in a courtroom filled with about 40 spectators. He left the hearing without answering questions, but expressed contrition in an interview later.

"I just want everybody to know I'm sorry," Erpenbeck said in the office of his lawyer, Glenn Whitaker. "I feel bad for the homeowners, the contractors, the employees, everybody. It should never have happened. I've spent the last two years, every minute of every day, thinking about it."

Whitaker said Erpenbeck has cooperated with the government in every way and relinquished virtually everything he owns.

"This has been something for which he has truly been sorry from the very beginning," Whitaker said. "He's as remorseful an individual as I've ever met."

Kathleen Brinkman, the assistant U.S. attorney who led the prosecution, said she doesn't expect Erpenbeck to be sentenced for 90 to 120 days. Meantime, he must cooperate with investigators and, if necessary, testify before a federal grand jury and at the trial of any co-defendants.

For now, Erpenbeck faces up to 30 years in prison - there is no minimum. He must also pay double restitution or a $1 million fine - whichever is greater - as well as forfeit his remaining assets and serve five years of supervised probation after prison.

The sentence will hinge on his cooperation and other conditions that will factor into a pre-sentence report to be prepared for Dlott. Brinkman said she would argue for a "downward revision" from the federal sentencing guidelines if Erpenbeck cooperates as promised.

Erpenbeck's plea followed the launch of the FBI's investigation of the Erpenbeck Co. by nearly a year. The Edgewood-based company collapsed last April under the weight of bills, lawsuits and unsold homes built almost entirely by subcontractors unaware that they would not be paid. Just three years ago, Erpenbeck was the third-biggest home builder in Greater Cincinnati.

The U.S. Attorney's Office filed civil forfeiture claims against his former house in Crestview Hills and his condominium in Florida, alleging that they were bought with bank fraud proceeds. The government cited the same bank fraud statute in seizing properties owned by John Finnan and Marc Menne, two former Peoples Bank of Northern Kentucky officers under suspicion in the case.

According to the bank fraud complaint and a supporting FBI affidavit unsealed Wednesday, Bill Erpenbeck and four employees diverted $33.9 million in home-sale proceeds from early 1999 to March 2002. Instead of giving the money to the company's construction lenders, they deposited it into company accounts at Peoples Bank and Firstar Bank (now U.S. Bank) and used it for company purposes.

The scheme affected others domino-style.

Because construction lenders were not paid, they did not release mortgages on homes that were sold. Home buyers, unaware that the first mortgages were not released, not only could not sell or refinance their homes, but were in danger of losing them to foreclosure. Unpaid subcontractors further encumbered homes by filing liens. Title insurance agents were faulted for not delivering home-sale funds to construction lenders.

A civil class-action lawsuit filed by Cincinnati lawyer Stan Chesley - Dlott's husband - resulted in Peoples Bank's appropriation of $16.8 million to pay off construction loans on about 209 homes bought with bank financing. Peoples, which sold its operations to the Bank of Kentucky last fall, negotiated with title companies and other banks about sharing the liability. Many of those mortgages have since been paid off.

Of the $33.9 million in unpaid construction loans, Erpenbeck paid down about $7.6 million, leaving a balance of $26.3 million. U.S. Bank, with $14.3 million, has the most at stake, followed by Peoples Bank with $4.9 million. Bank One is out $3.7 million, and Provident Bank is due $2.3 million.

How so many large banks could have been fooled by Erpenbeck was perhaps answered Wednesday. In his five-page affidavit, FBI agent Kevin Gormley said Erpenbeck Co. kept construction lenders at bay by continuing to make interest payments, which would conceal the fact that the home had been sold. If the lender tried to sell or refinance the loan - and discovered the unreleased mortgage through a title search - Erpenbeck employees would explain it away as a bookkeeping error or mental lapse, he said.

Tim Sullivan, a Cincinnati lawyer representing U.S. Bank, said the bank hopes to recover "most" of the $14.3 million in unpaid loan balances from Erpenbeck. The amount, he said, will come down to the bank's negotiations with Peoples Bank and title insurance companies.

"We hope to recover a substantial amount of that money within the next 30 days," he said.

Dlott allowed Erpenbeck to remain free on a $100,000 "own recognizance" bond, which means he did not have to post any money or anything of value. She ordered him to turn in his passport and said he may travel between Florida and Greater Cincinnati, but not elsewhere.

The judge also notified him that, as a felon, he couldn't vote, hold office, serve on a jury or possess a firearm.

Brinkman declined to say anything about other suspects.

Erpenbeck lost his 9,000-square-foot house in Crestview Hills through a U.S. Bankruptcy Court proceeding. Creditors forced him into bankruptcy because he had personally guaranteed some of his company's debts.

The collapse of Erpenbeck's company led to changes in how property-sale proceeds are conveyed in Greater Cincinnati. It also led to a greater interest in homeowners title insurance, which protects buyers from the Erpenbeck brand of fraud.

Calls for tighter laws regulating closings so far have not resulted in new laws in Ohio or Kentucky.

Enquirer reporters Patrick Crowley and Jeff McKinney contributed to this report.

E-mail jmcnair@enquirer.com