Wednesday, February 11, 2004

Fraud case fine, FBI says

Erpenbeck won't hurt evidence against bankers

By James McNair
The Cincinnati Enquirer

The government's fraud investigation of two former Northern Kentucky bankers will not be weakened by the latest criminal charge against its most visible witness, former homebuilder Bill Erpenbeck, an FBI spokesman said Tuesday.

Anyone interested in bidding on the Erpenbeck possessions seized by the FBI can see the items in person Friday morning at Union Terminal.

The U.S. Marshals Service is making the items available for public viewing from 11 a.m. to noon. The items will be auctioned online at beginning Monday morning and ending Wednesday and Thursday.

The items include a 2001 BMW 325ci convertible, five Washington Redskins jerseys signed by different quarterbacks, a mink coat, Rolex watch and a diamond necklace and earrings.

Proceeds net of expenses will be distributed to victims of the Erpenbeck fraud.

Federal prosecutors and the FBI have investigated the former top two officers of Peoples Bank of Northern Kentucky - John Finnan and Marc Menne - for almost two years, but have not charged the pair with any crimes. The government filed liens against their homes in 2002, saying they were bought, in part, with proceeds of bank fraud. As recently as Friday, the FBI said Erpenbeck's $33.9 million check-diversion scheme "involved collusion" by the two ex-bankers.

Bill Erpenbeck, his sister, Lori Erpenbeck, and another Erpenbeck Co. employee pleaded guilty to bank fraud in 2003 in connection with a three-year scheme that put the homebuilding company out of business, forced the sale of Peoples Bank of Northern Kentucky and left home-buyers, subcontractors and banks with tens of millions of dollars in claims. Erpenbeck projects throughout the Tristate were taken over by lenders and, in some instances, have been revived by new developers. A criminal investigation is still underway and Bill Erpenbeck agreed to cooperate with federal investigators in their pursuit of other suspects.

Last week, however, he was arrested in an FBI sting for allegedly tampering with a government witness called to testify against him at a sentencing-related hearing - his sister, Lori. Also arrested in the sting operation was Erpenbeck's father, Tony. Both are being held without bail at the Hamilton County Justice Center.

The bankers' lawyers said Tuesday that the new allegation against Erpenbeck shows he can't be trusted.

"This whole episode confirms to me what Marc has been telling me all along, that Bill Erpenbeck is a liar," said Menne's lawyer, Harry Hellings of Covington.

"Knowing (assistant U.S. attorney) Kathy Brinkman as a skilled attorney, I can't imagine her using him for anything now," he said. "His value to the government is zilch. His testimony is not worth anything."

Richard Goldberg, a Hyde Park lawyer who represents Finnan, echoed that observation.

"Here's a guy who would sacrifice his own sister in order to save himself," Goldberg said. "He has absolutely no credibility at all. He will say or do anything to deflect blame onto others."

As detrimental as the arrest may appear to the government's investigation of the bankers, FBI spokesman James Turgal said it will have "no impact whatsoever."

"We're going forward with our investigation as we normally would," Turgal said. "There's no change in strategy, no change in how the case is being run. It won't affect what we're doing."

Until his company became insolvent in April 2002, Erpenbeck was close to Finnan and Menne. Peoples Bank provided checking accounts and construction loans to Erpenbeck Co. Finnan lived in an Erpenbeck-built house a block from Erpenbeck's home in Crestview Hills. Menne was a frequent guest at Erpenbeck parties.

But in a May 2002 court filing, the FBI said the bankers took extraordinary steps to help their biggest customer.

In 2001, agent Kevin Gormley said in the sworn statement, Finnan and Menne bypassed Peoples' board of directors in securing $4 million in loans from other Kentucky banks to cover overdrafts in the Erpenbeck accounts. Moreover, Gormley said, they told the banks that the loans were for real estate projects, not overdrafts.

Gormley also told of a Finnan-Menne enterprise called JAMS Properties that bought 24 homes from Erpenbeck, then leased them back, from 1997 through 2000. He said JAMS obtained bank loans for the homes in excess of their purchase price and received cash upon closing, some of which, he said, was kicked back to Bill Erpenbeck.

Finnan and Menne have denied wrongdoing, and their lawyers say they don't know where the government's investigation stands. Finnan sold his home and moved to Florida, while Menne started a landscaping business in Northern Kentucky. Peoples Bank, crippled by the Erpenbeck affair, sold its operations to the Bank of Kentucky in 2002.

Evidence generated outside of the criminal case revealed that Bill Erpenbeck's interests began to run contrary to Finnan's as the Erpenbeck company collapsed in 2002. In a civil lawsuit filed by subcontractors against Peoples Bank, a tape believed to have been secretly recorded by Erpenbeck was introduced into evidence. The tape contains a conversation between Finnan and Erpenbeck. In it, Erpenbeck induces Finnan to discuss how he arranged the $4 million in overdraft-protection loans without the bank board's approval.

But the extent to which the government is relying on Erpenbeck's testimony remains unclear. The U.S. Attorney's Office would not comment Tuesday on his standing as a witness. Mark Godsey, a former federal prosecutor in Manhattan who now teaches law at the University of Cincinnati, said Erpenbeck's arrest last week impairs his usefulness.

"Certainly the fact that he tried to influence a sentencing-hearing witness cuts down his credibility as a witness," Godsey said. "It gives ammunition to defense lawyers on cross-examination if he testifies."

Turgal, however, said the government's case against the bankers doesn't hinge on Erpenbeck.

"Trust me, the federal investigation and possible indictment of other individuals will stand on the investigative steps and information we collect and won't live or die on the information he gives us," Turgal said.

Patrick Crowley contributed to this report. E-mail

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