By Patrick Crowley
Enquirer staff writer

John Finnan (front) leaves the federal courthouse in Covington accompanied by his wife, Susan. The Enquirer/MICHAEL E. KEATING

COVINGTON - John Finnan and Marc Menne, whose role in the Erpenbeck scandal brought down the Northern Kentucky bank they helped build, pleaded guilty Tuesday to federal felony charges.

Finnan, 50, who was president of the defunct Peoples Bank of Northern Kentucky, and Marc Menne, 47, an executive vice president who oversaw commercial lending, could spend at least nine years and as many as 11 in federal prison, Judge William O. Bertelsman said during the hour-long hearing.

The bankers also face up to $1 million in fines and must pay restitution of as much as $11 million. Bertelsman set sentencing for Oct. 29. Both men were released without posting bond, though Finnan - who now lives in the Florida Panhandle - was required to surrender his passport.

Finnan and Menne avoided trial by reaching plea agreements with federal prosecutors. Both have provided information that has helped the Erpenbeck investigation, prosecutors said. And because of their cooperation, they might receive less prison time than nine years.

Other than answering "yes" and "no" to Bertelsman's questions, Finnan and Menne made no statements during the hearing. Neither defendant spoke to reporters as they left the U.S. Courthouse here.

"They have pleaded guilty ... to old-fashioned bank fraud," U.S. Attorney Gregory Van Tatenhove said after the hearing. "They ended up lining their own pockets in the midst of the collapse of ... the Erpenbeck Co.

"The victims lost money ...just as if they've been robbed," Van Tatenhove said. "In the words of my mother, (the bankers) shoulda known better. The bottom line here appears to be greed."

Finnan and Menne pleaded guilty to bank fraud, willfully misapplying $2 million in bank funds, and drafting phony loan documents.

Finnan, who was accompanied by his wife, Sue, and a sister, greeted Menne with a firm handshake and a smile when they met in the courtroom just before the hearing.

Menne was smiling as he chatted with lawyers and others in the courtroom. His wife, Alice, and the couple's three teenage daughters attended the hearing.

Finnan and Menne, both career bankers with strong community ties and involvement, built Crestview Hills-based Peoples Bank into a respected and thriving community bank that by early 2002 had accumulated assets of $207 million.

The bank's largest customer was Bill Erpenbeck. A flamboyant and apparently successful home builder, Erpenbeck lived a lavish lifestyle that included throwing elaborate theme parties at his $1.3 million home abutting Summit Hills Country Club in Crestview Hills, and taking up to 200 friends and business associates on Caribbean cruises.

Erpenbeck pleaded guilty to bank fraud and is serving a 30-year federal sentence in Florida for diverting $34 million in checks from home closing.

The checks were supposed to pay off construction loans but instead were diverted into Erpenbeck Co. accounts at Peoples and US Bank.

But as Menne's lawyer, Harry Hellings, pointed out after Tuesday's hearing, the bankers were not implicated in the check-kiting scheme.

Erpenbeck's check scheme did, however, so damage Peoples Bank that it was forced to sell out to the Bank of Kentucky in late 2002.

And Hellings did say that Erpenbeck's check kiting eventually led the bankers to get into deals that resulted in criminal charges.

"Erpenbeck made various representations to both Finnan and Menne that he could bail himself out of this situation if given an opportunity," Hellings said.

In February 2001, Provident Bank in Cincinnati "detected and ended" Erpenbeck's check-kiting scheme, according to court documents released Tuesday.

"As a result, the accounts of the Erpenbeck Co. at Peoples Bank ... were overdrawn," prosecutors said in the court documents.

To cover the overdrafts, Finnan and Menne loaned an Erpenbeck subsidiary just over $2 million.

To hide the real reason of the loan, the bankers backdated the loan and filed paper work indicating "the stated purpose" of the loan was to build 32 town homes at Triple Crown in Boone County.

But $2 million was not enough to cover all of Erpenbeck's overdrafts. So Finnan and Menne made nearly $4 million in loans to Erpenbeck's father, Tony Erpenbeck, who has pleaded guilty to obstruction of justice for his role in the scheme and is awaiting sentencing.

Once again, the bankers took steps to hide the true nature of the loans from the bank's board.

They also didn't seek approval of the bank's loan committee.

Still, more money was needed to cover Erpenbeck's financial problems. But Peoples was at its lending limit to the homebuilder.

So Finnan and Menne brought in three other Kentucky banks from Frankfort, Corbin and Campbellsville and put together $29 million in participation loans for Erpenbeck.

Finnan and Menne misled the banks by telling them the money was for Erpenbeck's cash flow, prosecutors said.

"Neither John O. Finnan nor Marc Menne advised these participating banks that the Erpenbeck Co. had been involved in a check-kiting scheme or was in an overdraft situation with Peoples Bank," according to the court documents.

Finnan, Menne and their wives were also in business with Erpenbeck through a company called JAMS Properties. (The acronym stood for the first letter of each spouse's first name.)

Beginning in 1997, JAMS bought 25 Erpenbeck model homes with no down payments and then leased the homes back to the Erpenbeck company.

To get loans to buy the homes, Finnan and Menne falsified loan documents to show down payments had been made, prosecutors said. JAMS was actually buying the houses at below-market costs, but were receiving loans over the purchase price.

Finnan, Menne and Erpenbeck split the extra money.

"They had a sweetheart deal with the Erpenbecks ... in what also looked like a kickback to Bill Erpenbeck," Van Tatenhove said. "And they had a huge incentive in the midst of this company, which was crumbling around them, to keep it propped up. Consequently, they lied in order to keep the money flowing, not for the investment in future construction but to cover bad checks."

The plea deals Finnan and Menne agreed to require them to keep cooperating with prosecutors.

"This is an ongoing investigation," Van Tatenhove said.

"I expect there will be other prosecutions that arise out of this case."

E-mail pcrowley@enquirer.com

The 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 in August to one count of federal bank fraud. No sentencing date has been set.

• Tony Erpenbeck: Father of Bill. He pleaded guilty in March to a 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 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 received encumbered 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.