By James McNair
Enquirer staff writer

Lori Erpenbeck, Thursday at the courthouse, received 366 days in prison. The Enquirer/TONY JONES

The Erpenbeck Co. collapsed in 2002. The Erpenbeck family crumbled Thursday.

Three months after Bill Erpenbeck was sent to prison for 30 years, his father and sister were given shorter sentences Thursday in connection with the bank fraud that forced what was one of the Tristate's biggest home builders into insolvency.

Tony Erpenbeck received a 70-month prison sentence for conspiring to obstruct justice.

Lori Erpenbeck, who endured years of torment from her father and oldest brother - before implicating them of federal crimes - will follow them behind bars for 366 days.

U.S. Senior District Judge S. Arthur Spiegel grappled with a host of federal sentencing guidelines and mitigating circumstances in giving three defendants in the Erpenbeck bank fraud case a total of almost 10 years in prison.

The sentencings packed Spiegel's courtroom and elicited streams of tears from the two female defendants. Both said they couldn't muster the strength to refuse Bill Erpenbeck's orders to carry on with a three-year check-kiting scheme.

KEY DATES

May 2, 2002: The Edgewood-based Erpenbeck Co., one of Greater Cincinnati's largest home builders, closes in the wake of an FBI investigation of a complicated scheme involving banking irregularities. The company abandons more than a dozen projects in Kentucky and Ohio, leaving subcontractors, banks and other creditors holding tens of millions of dollars of unpaid bills and loans. July 23, 2002: Peoples Bank of Northern Kentucky, mortally wounded by the loss the Erpenbeck Co. - its biggest borrower - is acquired by The Bank of Kentucky. Sept. 4, 2002: The FBI alleges that former Peoples executives John Finnan and Marc Menne borrowed money from three small banks to buy almost two dozen Erpenbeck model homes for less than the sum of the loans. Sept. 19, 2002: Shareholders of Peoples Bank sue bank directors for reckless conduct and breach of fiduciary duty. Nov. 15, 2002: Boone County Circuit Judge Jay Bamberger approves a settlement calling for Peoples Bank to pay $16.8 million toward unpaid construction mortgages on 211 homes purchased from Erpenbeck Co. March 16, 2003: A U.S. Bankruptcy Court trustee sells Bill Erpenbeck's Crestview Hills mansion at auction for $1.2 million, not enough to pay off all of the four banks with mortgages on the home. Erpenbeck was the president of Erpenbeck Co. April 9, 2003: Bill Erpenbeck pleads guilty to bank fraud, admitting that he diverted $33.9 million in home buyer checks that should have been used to pay off construction loans on the houses. Feb. 5, 2004: Bill Erpenbeck and his father, Tony, are arrested after the FBI hears - through a transmitter concealed on Lori Erpenbeck (Tony's daughter; Bill's sister) - their efforts to steer her testimony at a sentencing hearing for Bill. April 1, 2004: Bill Erpenbeck is sentenced to 30 years in federal prison and ordered to pay $55 million to 10 banks and one insurance company. June 22, 2004: Finnan and Menne plead guilty to bank fraud, misapplication of funds and lying on loan applications. July 1, 2004: Tony Erpenbeck is sentenced to 70 months for conspiracy to obstruct justice. Lori Erpenbeck is sentenced to 366 days and ordered to repay $55 million on one count of bank fraud. Former Erpenbeck Co. employee Michelle Marksberry is sentenced to two years and ordered to repay $55 million on one count of bank fraud.

"I know a lot of people have been hurt, and I feel very upset about it," Lori Erpenbeck said. "I didn't know at the time that my brother Bill was making the scheme. ... If I could have stopped it, I would."

The scheme crashed in April 2002 when the Erpenbeck Co. was forced to go out of business.

It could no longer juggle $33.9 million in unpaid construction loans. More than a dozen of its real estate developments in Greater Cincinnati were abandoned. Suppliers, subcontractors, banks and other creditors were left with defaulted bills and loans, while almost 300 home buyers faced the threat of foreclosure.

Lori Erpenbeck's willingness to wear a transmitter in February enabled the FBI to pin her 69-year-old father and her 43-year-old brother with witness-tampering convictions. Lori, 41, left the courtroom Thursday as Spiegel sentejced Tony Erpenbeck. Her lawyer, Patrick Hanley, said she has paid a high price for her disloyalty to the family: estrangement from all but her brother Gary and her aunt Linda Rager.

"She has been threatened, she has been bribed, and she has been browbeaten all of her life," Hanley said in court. "That played a role in this case."

Told that women 'subservient'

Rager said Tony Erpenbeck taught her as a child that women are "subservient" to men. She said Tony told her that she was "not good enough, not pretty enough, not strong enough and not smart enough to do anything."

Federal prosecutors asked Spiegel to lower Lori Erpenbeck's sentence in exchange for her extensive cooperation. He did, giving her one year and one day for one count of bank fraud. She had faced the possibility of nine years. Spiegel recommended that she serve her time at a federal camp in Lexington.

The two-hour hearing began on a bizarre note with Spiegel's revelation that he was the subject of a rumored contract hit by Tony Erpenbeck. He told the courtroom that the U.S. Marshal's Service notified him June 16 of the rumor from the Kentucky jail where Erpenbeck has been held since Feb. 5. After some investigation, he wrote it off as unfounded. He declined to withdraw from the case at the suggestion of Erpenbeck's lawyer, Ed McTigue.

"I was just concerned for the safety of my family," Spiegel said.

Begging for mercy

Tony Erpenbeck was arrested Feb. 5 as he and Bill pressured Lori Erpenbeck to change her account of Bill's role in the bank fraud at a sentencing hearing. Tony urged her not to "bury" Bill and to absorb more of the blame in the fraud.

Faced with the prospect of spending more than five years in prison, Tony, also a former home builder, begged Spiegel for mercy.

"This is the worst day of my life," he said, sobbing. "I am very, very sorry for what I have done, and the choices I have made. ...

"If I get any kind of sentence whatsoever, it'll be a death sentence. I would like to have a chance to go back home and rebuild my life," he said, adding that he did not threaten the judge.

McTigue argued in vain for a lesser sentence.

"What he did was simply to try to find a soft landing spot for both of his children," McTigue said. "It's what any father would do. ... He wasn't making good, clear decisions."

Spiegel wasn't moved. He ordered Erpenbeck to spend 70 months in prison and pay a $2,000 fine. He agreed to recommend that he be held at the federal prison hospital in Lexington.

Closing agent sentenced

The third defendant, Michelle Marksberry, served as the Erpenbeck Co.'s chief closing agent for home sales. She, too, was given credit for assisting federal investigators. Facing the possibility of three to five years in prison for one count of bank fraud, Marksberry, 34, received two.

"I can't express my shame and how sorry I am," she said tearfully. ... .

"Bill Erpenbeck was a male dominant figure in my life who I trusted and respected," she said. "He told me to do what I did, and I didn't have the courage or strength to walk away."

Spiegel ordered both Marksberry and Lori Erpenbeck to pay $16.4 million in restitution to Peoples Bank of Northern Kentucky, which was driven out of business in November 2002 by its exposure to defaulted Erpenbeck loans and other liabilities. They were also ordered to pay $5 million to Peoples' insurance company, Ohio Casualty Corp., and $2,334 to Kenwood Savings Bank, now part of Peoples Community Bank.

Assistant U.S. Attorney Kathleen Brinkman was pleased with the sentences and Spiegel's willingness to ease up on Lori Erpenbeck and Marksberry. "We're satisfied that the judge understood the value of their assistance," she said.

Marksberry and Lori Erpenbeck were given until Aug. 2 to report to their assigned prisons.

Staff writer Justin Fenton contributed to this report.

E-mail jmcnair@enquirer.com