By James McNair
Enquirer sStaff wWriter

Mark Menne (front) leaves the federal courthouse in Covington accompanied by his wife, Alice. The Enquirer/MICHAEL E. KEATING

COVINGTON - By skirting the law to help a financially teetering home builder, John Finnan and Marc Menne assured themselves of a place in the Tristate's annals of rogue bankers.

Finnan and Menne, the top executives at the defunct Peoples Bank of Northern Kentucky, admitted Tuesday to a series of criminal acts that preserved the veneer of solvency at the Erpenbeck Co., the bank's biggest loan customer, and threatened the health of more than a dozen other banks in Kentucky, Ohio and Indiana. Under false pretenses, the two men mustered $40 million in loans before Erpenbeck folded in April 2002.

"We are living in a culture in which the integrity and confidence of corporate America and the banking system depend on individuals being committed to their fiduciary duty, and in this case they weren't," said Gregory Van Tatenhove, the U.S. attorney for the Eastern District of Kentucky.

As president and executive vice president of Peoples Bank, respectively, Finnan and Menne funneled $5.9 million in overdraft coverage to Erpenbeck - without the bank board's knowledge, according to court documents filed Tuesday. They persuaded a group of Kentucky banks to participate in a $29.5 million group loan to Erpenbeck - but failed to apprise them of the builder's true financial condition. And they obtained $4.7 million from three other banks to buy 25 Erpenbeck model homes that cost less than the sum of the loans.

Although variations of bank fraud - both by insiders and account holders - are fairly commonplace, it is still relatively rare for bank presidents to be implicated in fraud cases.

Debra Stamper, general counsel of the Kentucky Bankers Association, said the organization was shocked to learn of Finnan's guilty plea Tuesday.

"It's very sad that one of the men who was perceived as an up-and-coming great banker turned out to have made some bad choices," Stamper said. "We were very disappointed."

Bert Ely, a banking consultant and former bankruptcy examiner in Alexandria, Va., said Finnan and Menne's crimes were serious, even though no other financial institutions failed.

"It wasn't just that they were blowing up their own bank," Ely said. "Because of all the loan participations, they were creating serious potential losses for other banks and could have caused other banks to fail."

Past banking scandals in Cincinnati and Kentucky wrought harm not only to banks, but to investors and taxpayers:

• Home State Savings Bank of Cincinnati collapsed in 1985, triggering a statewide savings-and-loan crisis that required a $129 million bailout by the Ohio General Assembly. Its chairman, the late Marvin Warner, was found guilty of nine criminal charges in Hamilton County Common Pleas Court, then served 28 months of a three-year prison term.

• Jake and C.H. Butcher presided over a 26-bank empire in Tennessee and Kentucky that imploded amid fraud and insider lending in 1982. The brothers were convicted, sentenced to 20 years in prison and then paroled after serving about seven years. Among the banks that Jake Butcher used aa a personal conduit of money were the former United American Banks of Lexington and Somerset.

• Although Lincoln Savings & Loan was in Orange County, Calif., the chairman of its parent company, Charles Keating, was from Cincinnati and practiced law here. Lincoln's 1989 failure required a $3.4 billion federal bailout. Keating was convicted of fraud in a California court in 1993 and served almost five years in prison before the conviction was overturned and he was released.

• First National Bank of Northern Kentucky, a one-office operation in Fort Mitchell, was forced to raise $10 million in capital in 2002 to offset losses from lending practices gone awry. The U.S. Comptroller of the Currency forced the ouster of its president, Richard Thomas. The FBI is conducting an investigation.

While the names Finnan and Menne scarcely conjure up the notoriety of a Marvin Warner or Jake Butcher, lawyers who represent creditors in other Erpenbeck cases said they played a pivotal role in concealing the Erpenbeck fraud.

"It propped him up and let him go on a lot longer," said Brandon Voelker, a Covington lawyer who helped win a $16.8 million settlement for 210 Erpenbeck customers whose home-purchase checks were diverted into Erpenbeck bank accounts. "It would have ended in February 2001, when Provident Bank detected the check-kiting scheme. So you had another year of missing checks after that."

Said Jerry Miniard, a Florence lawyer who represents subcontractors in a class-action lawsuit against Peoples: "Finnan and Menne assisted Erpenbeck to stay in business so that he was able to get goods, services and labor from my clients without them knowing the true condition of Erpenbeck."

E-mail jmcnair@enquirer.com