By James McNair and Patrick Crowley
The Cincinnati Enquirer
Federal prosecutors investigating the Erpenbeck bank-fraud case are sending draft plea-bargain agreements to some of the 10 or so people likely to be charged with a crime in the 8-month-old case that has shaken the Northern Kentucky real-estate industry, a government source said.
The source, speaking on the condition of anonymity, said the investigation of the Erpenbeck Co. and Peoples Bank of Northern Kentucky is near completion. Company co-owner and former president A. William "Bill" Erpenbeck, the source said, faces 10 to 12 years in prison, depending on whether he pleads guilty or is convicted at trial.
The estimated sentence takes into consideration Mr. Erpenbeck's alleged leadership and planning roles in the suspected fraud and the amount of money taken, believed to be in the high $30 millions, the source said.
In July, the lawyer who represents Mr. Erpenbeck, Glenn Whitaker, said his client's case would likely be decided by a plea agreement, but no deal has been reached. Mr. Whitaker did not return phone calls last week.
Erpenbeck family lawyers contacted by the Enquirer said they have not received any proposed plea deals. Lawyers for the two former Peoples Bank executives suspected of fraud also were unaware of the deals. However, they said they would consider the government's offers if they come.
"If they come to us with an offer, of course we'll take a look at it," said Richard Goldberg, who represents John Finnan, who lost his job as Peoples' president in April. "Our minds are always open. If (prosecutors) are alleging they have sufficient proof that John is guilty of some offense, we'll look at what they have, we'll look at the statute, we'll look at John's conduct, and we'll see if it's proper to negotiate. It's not uncommon for something like this to happen."
Harry Hellings, the lawyer for Marc Menne, Peoples' former executive vice president, said taking a chance on a jury trial involving defrauded home buyers and a failed bank would be risky. Mr. Hellings, one of Northern Kentucky's most experienced criminal defenders, said he would consider a plea agreement.
"There will be a lot of prejudice because a lot of people were hurt," he said. "I'd hate to be sitting next to Bill Erpenbeck in a trial. He's going to get crushed."
Mr. Finnan and Mr. Menne were forced to leave Peoples after bank directors learned that the pair had run a sideline business called Jams Properties that bought model homes from Erpenbeck Co. The government placed liens on the 19 homes in May, alleging in the documents that the properties were financed in part with proceeds of bank fraud.
The FBI began its fraud investigation in March and is working alongside the U.S. Attorney's Office, the Federal Deposit Insurance Corp. and the Internal Revenue Service. Agents have taken possession of thousands of loan records, bank statements and business transaction documents from Erpenbeck Co. and a large number of banks, title insurance companies and suppliers of goods or services. Erpenbeck was the region's fourth-biggest home builder in 2001.
Sources with the U.S. Attorney's Office and FBI said charges are not expected anytime soon and that plea negotiations could extend into next year.
Meanwhile, they said, prosecutors are finalizing a spreadsheet of the money taken in the alleged fraud and are working toward solidifying individual cases with documents and paper trails.
"We are absolutely continuing the investigation," FBI spokesman Jim Turgal said. "We've made extensive progress on all the documentation. It's not your garden-variety corporate fraud case."
From early 2000 on, Erpenbeck employees diverted about $33 million in home-purchase proceeds into Erpenbeck accounts at Peoples instead of using the money to pay off construction loans, officials have said.
As a result, banks and construction suppliers weren't paid off, and home buyers were saddled with unpaid first mortgages. Through lawsuits and private negotiations, creditors are trying to reconcile their conflicting claims.
Peoples Bank agreed to front $16.8 million to remove liens from more than 200 doubly encumbered homes.
The scandal dealt such a mortal blow to the bank that it sold its banking operations to the Bank of Kentucky. Peoples went out of business Friday night. Its branches will reopen Monday under the new owner's name.
FBI agents have interviewed the primary targets as well as former Erpenbeck and Peoples employees, according to Enquirer interviews with ex-employees, law-enforcement sources and defense lawyers.
The government is taking a close look at six members of the Erpenbeck family, including the patriarch Tony Erpenbeck and the company's outside lawyer, Richard Erpenbeck. It is also investigating Erpenbeck Co. employee Michelle Marksberry, who ran the home builder's closings and received the checks later diverted into company bank accounts.
The FBI had been looking at Tom Jordan, an Erpenbeck Co. vice president who handled banking matters for the company. Mr. Jordan died of an apparent heart attack in his Union condo Wednesday. His lawyer, Hal Arenstein of Cincinnati, said Thursday he "never found out" if Mr. Jordan was a prime target in the case because investigators were focusing on others.
The source said the government has expressed concerns to Mr. Whitaker about the removal - and sale - of valuables in Bill Erpenbeck's mansion in Crestview Hills. That concern is shared by the court-appointed trustee in Mr. Erpenbeck's bankruptcy case. The trustee, Mike Baker, has already been granted oversight on Mr. Erpenbeck's spending.
John D. Smith of Springboro, the lawyer for Gary Erpenbeck, said he hasn't received a plea deal - nor does he expect one, because he says his client is innocent of any wrongdoing.
The youngest of Tony Erpenbeck's five children, Gary Erpenbeck, 34, was a one-third owner of the Erpenbeck Co. and was in charge of project development.
"He's an Erpenbeck, which means they're going to look at him," Mr. Smith said. "But I can tell you he didn't have anything to do with any of this."
Covington lawyer Pat Hanley said his client, Lori Erpenbeck, has not received a draft plea agreement. Jeff Erpenbeck, the company's president since March, declined to be interviewed. Tony Erpenbeck did not return a phone call. Bob Carran, the lawyers for Mrs. Marksberry, did not return calls.
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