Wednesday, September 10, 2003

Ex-banker denies fraud role

Finnan, facing suit, says he's an Erpenbeck victim

By James McNair
The Cincinnati Enquirer

A year after being ousted from his job, former Peoples Bank of Northern Kentucky president John Finnan says in a new court filing that he did not take part in home builder Bill Erpenbeck's $33 million bank-fraud scheme - and that he was defrauded himself.

Finnan was an early casualty of the Erpenbeck Co. collapse in April 2002 and its concussive effect on lenders, subcontractors and home buyers. Creditors of the Edgewood home builder sued for more than $100 million in unmet obligations. Peoples forced Finnan to resign, then sold its operations to the Bank of Kentucky. Erpenbeck and two employees have pleaded guilty to federal bank fraud in a criminal investigation that isn't finished.

Peoples, a privately owned bank with eight branch offices, was named in a class-action lawsuit filed by shareholder Mark Eschenbach in July. The suit blames the bank's directors, including Finnan, for the decline in the value of Peoples shares from a peak of $38. The liquidation value of Peoples shares won't be known until the holding company settles its remaining claims.

In his response to the lawsuit filed in Kenton County, Finnan disclaims any knowledge of fraudulent activities and expounds his viewpoint for the first time.

Finnan acknowledges having a "close personal, social and business relationship" with Bill Erpenbeck and he says he knew "in the later stages" of their relationship that Erpenbeck Co. was having financial problems. He said Erpenbeck Co., a large borrower, survived "periodic" reviews for financial condition. Only in March 2002 - not in 2000 as the lawsuit contends - did he realize Erpenbeck was in trouble.

Finnan says he, former Peoples officer Marc Menne and their wives fell victims themselves to Erpenbeck's scheme of taking home-sale checks made out to construction lenders and diverting them into Erpenbeck's own accounts at Peoples and U.S. Bank.

Their company, called Jams Properties, bought model homes from Erpenbeck in deals calling for Erpenbeck to lease the homes back from Jams. In seven of those deals, however, Erpenbeck kept the proceeds from those transactions - $889,156 - instead of paying off his lenders.

Ultimately, Finnan and Menne were fired for failing to tell Peoples' directors about the Jams deals. Finnan insists he still knows of no law requiring such disclosure, although banks and large corporations often have ethics policies forbidding such outside dealings or requiring their disclosure.

The shareholder lawsuit cites an April 11, 2002, telephone conversation between Finnan and Bill Erpenbeck - and secretly taped by Erpenbeck. Although the talk is largely that of two men about to enter the maelstrom of federal scrutiny, Erpenbeck's oral date and time stamp suggests that he was taping the call for government investigators.

An FBI spokesman confirmed that the agency has the tape, which contains nothing incriminating. In his response to the lawsuit, Finnan says he had already talked to investigators and had been instructed not to tell Erpenbeck about their interest.

Finnan, like Erpenbeck, now lives in Florida.


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