By James McNair
The Cincinnati Enquirer

The top two officers of a defunct Northern Kentucky bank that participated in a check-kiting scheme ensnaring hundreds of Erpenbeck Co. home buyers have agreed to plead guilty to criminal charges, the U.S. Attorney's Office in Lexington said Tuesday.

OTHER PLAYERS

The investigation into the collapse of the Erpenbeck Co. previously resulted in four people pleading guilty to criminal charges. Here's an update on the others involved in the case: Bill Erpenbeck. The former home builder is now serving two concurrent 30-year sentences at a federal prison in Coleman, Fla., after pleading guilty to bank fraud and obstruction of justice - the harshest punishment prosecutors can recall in a local white-collar crime case. The obstruction charge stemmed from Erpenbeck's botched attempt to influence the testimony of his sister, Lori Erpenbeck, before a Feb. 6 court hearing. With good behavior, Erpenbeck, 43, is eligible for release after 26 years, or when he is 69. Lori Erpenbeck. The only sister of Bill Erpenbeck and the manager of his company's accounting department pleaded guilty last August to one count of federal bank fraud. No sentencing date has been set. Tony Erpenbeck. He pleaded guilty in March 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, in a sentencing hearing. No sentencing date has been set. 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 last July to a single count of bank fraud. No sentencing date has been set.

If the plea deals by John Finnan and Marc Menne are accepted by U.S. District Judge Jennifer Coffman, the agreements could conclude a multiagency federal investigation that began more than two years ago.

Three other defendants already have pleaded guilty to bank-fraud charges. One, former company president Bill Erpenbeck, is serving a 30-year prison sentence.

Papers filed with the court in Lexington do not specify the criminal charges against Finnan and Menne. Wanda Roberts, a spokeswoman for the federal prosecutor in Lexington, said the office has filed a document stating the government's intent to file an "information," which substitutes for an indictment when defendants agree to plead guilty.

"We're letting the court know that we are going to file an information, to which the defendants in the case are going to plead guilty," Roberts said. The two men will be arraigned next Tuesday in Lexington.

Finnan, who moved from Crestview Hills to Gulf Breeze, Fla., in 2002, was a founder and president of Peoples Bank of Northern Kentucky, which had $207 million in assets. Menne, of Villa Hills, was its executive vice president for commercial lending. Lawyers for the two men did not return telephone calls Tuesday.

Both men were forced to resign after the Erpenbeck Co., the bank's biggest customer, collapsed in insolvency in April 2002. The home-building company closed under a $34 million shortfall that left more than 250 customers with unpaid construction mortgages and liens on their homes.

Bank directors learned that Finnan and Menne - and their wives - ran a separate company that had bought 24 model homes in Erpenbeck developments "at or below cost" and with no down payments, the FBI contended in a May 2002 affidavit. Yet the company stated on sale documents filed with the government that it had made down payments, the FBI said.

The company, called Jams Properties, bought the 24 homes and borrowed money from three unrelated banks - in amounts greater than the purchase prices, the FBI said. Further, the agency said, Finnan and Menne used the loan proceeds for personal purposes and not for the purchase of the model homes, which were rented back to Erpenbeck Co. "at or above market rate."

A witness to the transactions said Finnan and Menne paid cash kickbacks to Erpenbeck during the transactions, a contention that Erpenbeck admitted to, the FBI said.

Because Peoples had maxed out its $8 million lending limit to the Erpenbeck Co. and individual family members, it appealed to a group of smaller Kentucky and Indiana banks to help bankroll Erpenbeck on a syndicated basis. Those banks, including Farmers Bank & Capital Trust in Frankfort and the Bank of Corbin, contributed about $30 million.

The banks were not informed about Erpenbeck's deteriorating financial condition, however, nor did they know that Finnan and Menne used about $4 million of their money to cover Erpenbeck overdrafts at Peoples Bank, the FBI said. The FBI said Finnan and Menne exercised the unusual overdraft-protection method without telling Peoples' directors.

Bill Erpenbeck, his sister Lori Erpenbeck - who worked in the company's accounting department - and chief closing agent Michelle Marksberry all admitted to a three-year scheme in which the $34 million in checks for home purchases were deposited into Erpenbeck Co. accounts at Peoples Bank and U.S. Bank - instead of being used to pay off construction loans.

As a result, more than 250 Erpenbeck customers were left with two mortgages on their homes and faced the threat of foreclosure by the construction lenders. The banks did not foreclose, but instead sold the remaining interests in Erpenbeck projects and wrote off their losses.

Peoples Bank sold its branch offices, deposits and good loans to the Bank of Kentucky in November 2002 for $15 million. Peoples' remaining corporate shell has yet to settle lingering legal claims for a final distribution to its shareholders.

If Finnan and Menne plead guilty, their pleas will come 14 months after Bill Erpenbeck became the first to admit guilt in the case.

Paul Fiorelli, a law professor at Xavier University, said the government's case against the bankers might have been delayed by the damage to Bill Erpenbeck's credibility after he tried in February to sway the testimony of Lori Erpenbeck before a sentencing hearing. Bill Erpenbeck's remarks were overheard through an FBI wiretap of his sister, and he was charged with obstruction of justice.

"Maybe they needed to spend the extra time to get the additional evidence they wouldn't get from him (on the witness stand) that would have been torn down (by the defense)," Fiorelli said.

E-mail jmcnair@enquirer.com