By Patrick Crowley
The Cincinnati Enquirer
With Bill Erpenbeck set to be sentenced March 29 on a federal bank fraud charge, prosecutors appear to be preparing their case against John Finnan and Marc Menne, former officers of the Northern Kentucky bank associated with the Erpenbeck scheme.
Court filings and testimony from Erpenbeck's lawyers, prosecutors and regulators allege a relationship between the homebuilder and former executives of Peoples Bank of Northern Kentucky, where Erpenbeck's company was the largest customer.
Erpenbeck has pleaded guilty for his role in stealing nearly $34 million through the diversion of property-sale closing checks.
Finnan, the bank's former president, and Menne, who was a top vice president of the bank, have not been charged. Authorities have been investigating them in connection with the Erpenbeck fraud since March 2002.
Finnan and Menne resigned from the bank after the investigation became publicly known. Each eventually sold Northern Kentucky homes valued at more than $600,000 and moved to more modest dwellings. Finnan now lives in Florida while Menne resides in Villa Hills.
Assistant U.S. Attorney Kathleen Brinkman would not comment directly on the investigation. But in a Feb. 3 court filing Brinkman said the bankers were "conspiring" with Erpenbeck to cover up the fraud scheme.
In a Feb. 13 filing in U.S. District Court in Cincinnati, James Ware, a bank examiner for the Federal Deposit Insurance Corp., testified that Erpenbeck was in "collusion" with Finnan and Menne. The arrangement allegedly depleted the bank's resources and did so much damage to its reputation that it was forced into a merger with the Bank of Kentucky.
Erpenbeck's lawyer casts his client as a pawn in the fraud scheme. "Mr. Erpenbeck did none of the allegedly complex aspects of the scheme personally," Glenn Whitaker said in a court filing.
Prosecutors have described Erpenbeck as the leader of the scheme. But they claim he was working in concert with the bankers and employees at his Edgewood homebuilding company.
Information about the relationships apparently was gleaned from conversations Erpenbeck secretly taped, some on his own and some at the request of federal investigators. "One cannot but listen to the recordings ... to get a feel for how involved (Erpenbeck) was with the company's employees and bankers in every aspect of the scheme," Brinkman said in a March 2 court filing.
Lawyers representing the bankers say Erpenbeck should not be believed. "Everything Erpenbeck says has to be viewed with a microscope because he is such a liar," said Covington lawyer Harry Hellings, who represents Menne. Finnan's lawyer, Richard Goldberg of Cincinnati, agrees. "What Bill Erpenbeck says is all untrue," Goldberg said. "He was the leader, he has the culpability. It's the same old game of blaming everyone else."
In addition to his bank fraud plea, Bill Erpenbeck and his father, Tony Erpenbeck, have been charged with obstructing justice. They are accused of trying to influence Lori Erpenbeck - Bill's sister and Tony's daughter - to testify in Bill's favor at a pre-sentence hearing. Lori Erpenbeck ran the accounting department at her brother's homebuilding company and also has pleaded guilty to a federal bank fraud charge.
Since Bill Erpenbeck was prosecuted first, some observers say federal authorities may be using him to make a case against the bankers.
Paul Fiorelli, a Xavier University business law professor, said in complex criminal cases federal prosecutors try to figure out who is the mastermind of the scheme.
"They want to find out who is the big fish," said Fiorelli, director of Xavier's Center for Business Ethics and Social Responsibility. "So if they are able to make a case against the smaller fish, they get them to flip and give info so they can go upstream to go get the bigger fish."
Brinkman alleges the bankers knew of the check scheme but helped cover it up because Erpenbeck was the bank's "most significant customer."
Goldberg and Hellings said that because their clients have not been charged with any crimes they haven't had the opportunity to formally address the federal allegations of a conspiracy involving Erpenbeck and the bankers. Hellings said the issue regarding the diverted checks "hasn't been fully addressed ... because we haven't had our day in court."
Whitaker claims the bankers wanted to protect Erpenbeck because his company was the bank's largest customer. So, using forged documents they hid Erpenbeck's financial problems by covering large overdrafts and approving loans to him without knowledge of the bank's board of directors, Whitaker alleges. The bankers "ran amok" and were "rogue employees ... who went on a frolic with Bill Erpenbeck," Whitaker said during a Feb. 13 hearing in federal court.
Whitaker further alleges the bankers were beholden to Erpenbeck because of a separate business relationship.
Finnan and Menne, along with their wives, were in a venture called Jams Properties that purchased model homes from the Erpenbeck Co. and then leased the homes back to Erpenbeck. The FBI has alleged the bankers were paying Erpenbeck kickbacks as part of the Jams transactions.
"The arrangement made them very wealthy," Whitaker said in the court documents. "(They were) living above their means as bankers."
Brinkman makes similar allegations in the March 2 filing, saying Erpenbeck "admits that he colluded with the bankers in Jams" while Finnan and Menne "concealed the overdraft loans" from the bank board.
"The bankers and (Erpenbeck) used false statements so that Jams would buy real estate for no money down at below cost," Brinkman said. "But (Erpenbeck) refuses to accept responsibility for the sophisticated means he and (the bankers) used to effect that collusion."
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