Friday, April 2, 2004

Erpenbeck gets two 30-year terms

By James McNair and Cliff Peale
The Cincinnati Enquirer

Assistant U.S. Attorney Kathleen Brinkman takes questions from the media outside the federal courthouse Thursday after Bill Erpenbeck was sentenced to 30 years in federal prison for his role in defrauding banks and home buyers.
The Cincinnati Enquirer/GLENN HARTONG

A federal judge sentenced former home builder Bill Erpenbeck to 30 years in prison Thursday for bank fraud - the harshest punishment prosecutors can recall in a local white-collar crime case.

U.S. Senior District Judge S. Arthur Spiegel also gave Erpenbeck a second 30-year sentence for Erpenbeck's botched attempt to influence the testimony of his sister, Lori Erpenbeck, before a Feb. 6 court hearing. Spiegel ordered that the terms run concurrently.

With good behavior, Erpenbeck, 43, is eligible for release after 26 years, or when he is 69.

"The sentence will give him a long time to think about the pain he has caused the many victims in this case," Assistant U.S. Attorney Kathleen Brinkman said. "It tells those who commit fraud that lengthy prison sentences await them."

Erpenbeck was the most visible defendant in a case that has netted two other guilty pleas and continues to occupy federal authorities in Ohio and Kentucky.

Erpenbeck was president of the Erpenbeck Co. in Edgewood before it collapsed in a fraud scheme affecting almost 300 home buyers, 50 banks and dozens of subcontractors in April 2002.

The fraud resulted in tens of millions of dollars' worth of unmet obligations. He pleaded guilty to one set of fraudulent transactions that left home buyers with $33.9 million in unpaid construction mortgages. At his instruction, Erpenbeck employees funneled the money - proceeds of home-sale closings - back into the company.

Spiegel's spacious courtroom was packed with more than 130 people, most of them victims of the fraud. After the hearing, many expressed satisfaction with the judge's handling of the case.

"We wanted to see the judicial system work for the little guys," said Alice Gonsalves, who nearly lost her Erpenbeck-built home in Boone County to foreclosure. "Nothing's going to repay what he's done. We've been under this stress, with all kinds of possibility of financial loss."

Louise Schulte, who paid cash for her home in Sherwood Lakes in Florence, said she still has a construction-loan mortgage on her home that Erpenbeck didn't pay off.

"This was a terrible thing for me, because I used every bit of my savings to purchase the condo," Schulte, 86, said. "Then I had to hire a lawyer."

Schulte said Erpenbeck's sentence does nothing to solve the problems he created for her.

"If it was 100 years, it wouldn't solve the real problem," she said.

Before he handed down the sentence, Spiegel acknowledged Erpenbeck's early surrender to authorities, his guilty plea, his cooperation with investigators, his former standing in the community and his lack of a criminal record. But he also noted the amount of loss, the number of victims, the sophistication of the scheme, his leadership role in it and the effect on the Peoples Bank of Northern Kentucky, which was forced to go out of business in 2002.

Scoring those factors under federal sentencing guidelines, Spiegel said, Erpenbeck faced 30 to 60 years for his two convictions. He went with the maximum, only to cut it in half by making the 30-year terms concurrent.

Asked whether he had anything to say before sentencing, a sobbing Erpenbeck said, "Just that I'm sorry, your honor. I never wanted anybody to get hurt."

Erpenbeck also was ordered to pay a forfeiture judgment of $33.9 million, to be paid to a group of eight banks that held mortgages on Erpenbeck-sold homes, and make restitution of $21 million. Of the $21 million, $16 million would go to the defunct Peoples Bank and $5 million to Ohio Casualty Insurance, which held the insurance policy on the bank.

Upon his release from prison, Erpenbeck will be placed on supervised probation for five years.

After sentencing, defense lawyer Glenn Whitaker asked that Erpenbeck be sent to a low-security prison in Coleman, Fla., about 185 miles from Erpenbeck's wife and three children in Fort Myers, Fla. Spiegel agreed to make a recommendation but said that decision belongs to the U.S. Bureau of Prisons, which tries to place inmates within 500 miles of their families.

In remarks before and after the sentencing, Whitaker lashed out at both the news media and the federal sentencing guidelines.

He said news reports failed to note that Erpenbeck tried to stop check-kiting practices that he said began with Lori Erpenbeck, who worked in the company's accounting department. He criticized the sentencing rules as a tool of the prosecution and said the system is amiss when the same guidelines can dictate a 10-year sentence for Andrew Fastow, whose actions at Enron Corp. helped cause billions of dollars in shareholder losses.

"This case demonstrates, to me at least, the inequity and injustice of what a strict application of the federal sentencing guidelines can create," Whitaker told Spiegel. "Sentencing Bill Erpenbeck under the circumstances of this case to a life sentence or to 30 years, which is tantamount to a life sentence, is wrong. We ask the court for mercy."

Whitaker said he would appeal the sentence, which Erpenbeck's plea-bargain agreement allows.

Paul Coyne, a Clermont County man who also lost money to Erpenbeck, was satisfied Thursday.

"I think the judge gave him a harsh sentence, but I think he deserved it," Coyne said.

Other players

The investigation into the collapse of the Erpenbeck Co. continues. Here's an update on others involved in the case.

Michelle Marksberry. As the Erpenbeck Co.'s closing coordinator, Marksberry represented the company at home closings, where home buyers receive titles to their homes and Erpenbeck Co. received payment. Portions of those payments were then supposed to satisfy bank loans that the company used to fund construction of the homes. But at the direction of Bill Erpenbeck, Marksberry turned those funds over to the company. She pleaded guilty in July to a single count of bank fraud. No sentencing date has been set.

Lori Erpenbeck. The only sister of Bill Erpenbeck and the manager of his company's accounting department pleaded guilty in August to one count of federal bank fraud. No sentencing date has been set.

Tony Erpenbeck. He pleaded guilty last month to a single charge of obstruction of justice. He and his son were arrested in an FBI sting after they asked a government witness - Lori Erpenbeck, Tony's daughter- to give less-damaging testimony against her brother, Bill Erpenbeck, in a sentencing hearing. No sentencing date has been set.

John Finnan and Mark Menne. Federal officials won't comment on their investigation of the two former officers of defunct Peoples Bank of Northern Kentucky, which was involved in the Erpenbeck fiasco. Court filings and testimony from Erpenbeck's lawyers, prosecutors and regulators allege a relationship between the home builder and former executives of Peoples Bank of Northern Kentucky, where Erpenbeck's company was the largest customer.


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