By James McNair and Patrick Crowley
The Cincinnati EnquirerThe Cincinnati Enquirer
A federal grand jury in Cincinnati in wading into the banking transactions surrounding the collapse of the Erpenbeck Co., studying events that investigators suspect may have amounted to fraud.
Grand jury proceedings are secret, and the U.S. Attorney's office in Cincinnati would not discuss the agenda of the panel hearing the Erpenbeck fiasco, which occurred 10 months ago and left home buyers, banks and subcontractors in a seemingly hopeless tangle of lawsuits.
But three bank lawyers and two law enforcement sources said the grand jury last week began hearing testimony from bank representatives and is reviewing transactions between the defunct Edgewood homebuilder and its lenders and customers.
The lawyers, who asked not to be named, said the grand jury heard testimony Jan. 8 from representatives of several banks. The group included U.S. Bank, which financed more Erpenbeck projects than any other bank, and Peoples Bank of Northern Kentucky, which handled most of Erpenbeck's transaction banking. Peoples Bank has since sold its operations to The Bank of Kentucky.
"It was pretty standard stuff," said one of the lawyers. "There was not real questioning or hard-hitting testimony. It was mainly just documents and checks being verified."
A federal law enforcement source said it would not be a back-burner case.
"Once we've finalized everything we need from the grand jury, you're probably going to see some plea agreements pretty soon," said the source, who asked not to be identified. "We're moving as fast as humanly possible."
The government has amassed a roomful of documents as a paper trail of what happened to more than 20 banks and several hundred home buyers and subcontractors caught in the company's collapse.
The Erpenbeck Co., Greater Cincinnati's third-largest homebuilder in 2000, failed to pay off construction loans on about 260 homes, leaving homebuyers in four Ohio and three Kentucky counties with double mortgages and the prospect of losing their homes to foreclosure. Settlement of a class-action suit spared that fate for about 210 consumers who had bank financing, but 50 who paid cash were left to fend for themselves.
The government believes Erpenbeck employees may have directed nearly $40 million, intended to pay off construction loans, into the company's accounts at Peoples.
John D. Smith, who represents Gary Erpenbeck, a brother of Bill Erpenbeck who was in charge of project development for the company, and Harry Hellings, who represents former Peoples Bank officer Marc Menne, predicted no action against their clients.
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