Thursday, August 01, 2002

More names emerge in Erpenbeck fraud case




By James McNair, jmcnair@enquirer.com
and Patrick Crowley, pcrowley@enquirer.com
The Cincinnati Enquirer

        As homebuyers, banks and other Erpenbeck Co. creditors duke it out in civil courts, federal criminal authorities are trying to home in on the people responsible for the company's collapse and its $107 million aftermath.

        Three people have borne the brunt of publicity: former company president A. William “Bill” Erpenbeck, who has conceded the probability of entering a guilty plea, and John Finnan and Marc Menne, the former top executives at Peoples Bank of Northern Kentucky. But the FBI has met with or is asking about at least seven other people — five of them Erpenbeck family members — and is evaluating their roles at what was the Tristate's third-largest home builder, according to Enquirer interviews with ex-employees, law enforcement sources and defense lawyers.

STORY ARCHIVE
Click here for all Enquirer reports on Erpenbeck Co.
INVESTIGATION
If you have any additional information on the business dealings of the Erpenbeck Co. or Peoples Bank of Northern Kentucky - or on the involvement of any parties not yet identified in our coverage - please email Enquirer business reporter James McNair at jmcnair@enquirer.com or Kentucky Enquirer reporter Patrick Crowley at pcrowley@enquirer.com.
        Federal authorities have made the 4-month-old Erpenbeck investigation one of major importance. Several hundred homebuyers and scores of banks, title insurance companies and subcontractors are claiming more than $107 million in potential losses. Almost 100

        Greater Cincinnati lawyers have clients in the legal quagmire.

        For now, federal agents are slogging through boxes of loan documents and canceled checks. They are also interviewing people who were near the epicenter of questionable transactions. As of a month ago, the FBI was trying to recover e-mails from Erpenbeck Co. computers.

        “Once they get a handle on what people are saying in their interviews, they (federal prosecutors) decide who they want to call before the grand jury — if anybody — and who their likely targets are,” said Donald Bucklin, a Washington criminal defense lawyer who was the government's lead trial counsel in several savings-and-loan fraud cases.

        “They'll start focusing on individuals they believe have engaged in wrongdoing, and they'll decide if they make offers of lesser counts to people at the bottom of the list of potential targets.”

        Neither the U.S. Attorney's Office nor the FBI would confirm or deny their interest in those not named in civil forfeiture actions. FBI spokesman Jim Turgal did confirm, though, that agents with expertise in accounting and banking are poring over documents and interviewing people to verify or dismiss suspicions.

        “We're still in the process of acquiring information in order to nail down exactly who's who in the investigation,” Mr. Turgal said.

        “When you're talking about financial cases, you've got to take it from a very nuts-and-bolts standpoint because you're talking about numbers and a paper trail. It's totally different from a dope investigation.”

        Federal investigators are immersed in a paper-intensive examination of home sales, mortgage loans and check transfers over a 2 -year period. If there was fraud, it appears to be rooted in home-sale transactions that went awry. Instead of paying off the company's construction loans with closing proceeds, Erpenbeck employees steered the money into company accounts at Peoples Bank. As a consequence, more than 200 Erpenbeck customers are stuck with $17 million in debt.

        On at least two occasions reviewed by the Enquirer, confirmation letters for construction loan payoffs were apparently falsified, giving homebuyers the impression that their purchase money had been properly applied.

        Four of the people on the government's radar screen are named in civil lawsuits filed by the U.S. Attorney's Office in Cincinnati.

        Citing asset forfeiture statutes, federal prosecutors put legal shackles on 25 houses and condos owned by Mr. Erpenbeck; Mr. Finnan; Mr. Menne; a company owned by Mr. Finnan and Mr. Menne; and Richard Erpenbeck, a Covington lawyer and Bill's brother. The lawsuits allege that the money used to buy the properties can be traced to bank fraud. For now, the government is refraining from seizing the homes.

        Before firing all of its employees this year, about 75 people worked for the Erpenbeck Co. Other than Bill Erpenbeck, Mr. Finnan and Mr. Menne, the government has met with or is asking questions about at least seven other people who held ownership, management, legal or financial positions with the company:

        Thomas Jordan, vice president of administration for the Erpenbeck Co. A longtime banker, Mr. Jordan was president of Provident Bank's Northern Kentucky unit from 1991 to 1995 and was the highest-ranking Erpenbeck employee outside the family. Sources say the FBI and the Federal Deposit Insurance Corp., which regulates banks, are interested in his functions at Erpenbeck Co.

        Messages left for Mr. Jordan and his lawyer, Hal Arenstein, were not returned.

        Michelle Marksberry, the Erpenbeck Co.'s representative at home-sale closings. Ms. Marksberry, who used to work for Mr. Jordan at Provident Bank, took possession of closing checks meant to pay off Erpenbeck construction loans. She also handled the dissemination of documents and other matters after closing. Banks and title companies have questioned Erpenbeck Co.'s post-closing practices.

        Bob Carran, Ms. Marksberry's lawyer, said she gave an interview to the FBI “very early in the investigation,” likely in March though he could not recall the exact date. At the time she was told she was not a target of the investigation, Mr. Carran said. He would not comment further.

        Jeff Erpenbeck, the brother who assumed leadership of the company in March, also a one-third owner. Although not considered a suspect in the fraud scheme, he has nonetheless been the subject of FBI questions to others. Last month, he complied with an FBI subpoena for documents, and he has been helpful in giving information to investigators.

        His lawyer, Mike Barrett of Cincinnati, said Jeff Erpenbeck was not involved in the fraud.

        “Jeff's role in the company prior to the disclosure of the current circumstances was that of field construction manager, which means he oversaw the construction of the condo units,” Mr. Barrett said. “Although he maintained an office at the company headquarters, he wasn't involved in closings or financial transactions. That was left to others.”

        Mr. Barrett said Jeff Erpenbeck is assisting the government while working with banks to finish construction projects.

        “Since he's the person left to pick up the pieces, he's been providing documents to the government for their review and cooperating with questions they may have,” he said.

        Gary Erpenbeck, another brother and one-third owner who led the development side of the business before quitting to form his own business early this year. He has reportedly spoken with the FBI and is not known to be suspected of wrongdoing.

        Gary Erpenbeck did not return telephone calls.

        Richard Erpenbeck, whose law practice prepared legal documents for the company. Although considered to be a peripheral figure, the U.S. Attorney's Office alleges that the company condo in Myrtle Beach, S.C. — deeded in his name — was bought with tainted money. He, too, has reportedly spoken with the FBI.

        Mr. Erpenbeck did not return telephone calls.

        Tony Erpenbeck, the family patriarch. Mr. Erpenbeck owned 1 percent of the company and covered its overdrawn account at Peoples Bank in March. Although he wasn't involved in day-to-day affairs, the FBI is said to be interested in his connection to the company. Tony Erpenbeck did not return telephone calls.

        Lori Erpenbeck, Bill's only sister and a former accounting employee at the company. After financial irregularities were discovered, Ms. Erpenbeck resigned in January and went to the FBI. Her cooperation with the FBI, however, has strained her standing in the family, said her lawyer, Pat Hanley of Covington.

        “That has been a very difficult situation for Lori,” Mr. Hanley said. “Her brother, along with others, are the focus of this case, and she's forced, almost, to be in the position she's in.” He said he doesn't believe she had any role in the scheme.

        While the FBI and U.S. Attorney's Office sizes up the financial damage and who was responsible, talks have heated up between the government and Bill Erpenbeck.

        Two weeks ago, his lawyer, Glenn Whitaker of Cincinnati, disclosed that Bill Erpenbeck would be willing to plead guilty if terms can be reached with federal prosecutors. He said Mr. Erpenbeck, 41, has been cooperating with the FBI since going to the agency in March.

        “He's done whatever's been requested of him,” Mr. Whitaker said.

        Lawyers for Mr. Finnan and Mr. Menne did not return telephone calls. One of Mr. Finnan's lawyers, Richard Goldberg of Cincinnati, said early on that Mr. Finnan committed no crime and is cooperating with the FBI.

        As the criminal investigation wears on, some buyers of Erpenbeck-built homes want prison terms imposed on the people who saddled them with two mortgages — Erpenbeck's construction mortgages as well as their own.

        “I believe that it is appropriate for every party involved to be charged with fraud for each house closing in which mortgage proceeds were misdirected,” said Linda Harlow, who bought a $143,000 house in Covington from Erpenbeck Co. in October 2000.

        In addition to her own $130,000 mortgage, her house is still shadowed by a $110,000 mortgage from Erpenbeck to U.S. Bank.

       



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