Tuesday, July 8, 2003

Erpenbeck figure pleads guilty

Former employee abetted $33M fraud

By Patrick Crowley and James McNair
The Cincinnati Enquirer

Michelle Marksberry leaves the US Districy Courthouse in downtown Cincinnati after her sentencing hearing.
(Michael E. Keating photo)
| ZOOM |
Standing before a judge and fighting back tears, former Erpenbeck Co. employee Michelle Marksberry pleaded guilty to a single federal criminal charge Monday for her pivotal role in what started as a $1 million check floating scheme by the Erpenbeck Co. but ended up as a $33 million fraud.

Marksberry, 33, faces up to 30 years in prison, a $1 million fine and $26 million in restitution for the one count of bank fraud. It could have been worse, considering she took part in 295 home-sale transactions that cheated home buyers and banks alike over a three-year period.

Marksberry appeared shaken during the 45-minute hearing in a U.S. District Courtroom in Cincinnati that was packed with her family and friends, some of who wept during the proceeding.

Her voice cracked as she uttered the word "guilty'' to U.S. District Judge Susan Dlott. Marksberry also told the judge that she is under the care of a therapist but did not elaborate.

Marksberry is the second major figure in the Erpenbeck scandal to reach a plea agreement with federal authorities. In April, Bill Erpenbeck, founder and president of the high-flying Edgewood home-building firm, also pleaded guilty to one count of bank fraud for his role in overseeing the scheme. He is also cooperating with prosecutors and is expected to be sentenced later this summer.

Marksberry "had knowledge that certain checks she brought back to the company's offices were being deposited into the company's accounts," Assistant U.S. Attorney Kathleen Brinkman said. "She has given us substantial assistance ... in this ongoing investigation."

Brinkman refused to offer specifics about the deal that Marksberry and her lawyer, Bob Carran of Covington, made with federal prosecutors. But she did strongly hint that Marksberry would receive a reduced sentence in return for her cooperation.

"The government gives a recommendation for (reduced sentencing) for substantial assistance," Brinkman said.

Marksberry remained free on a $10,000 unsecured bond, meaning she had to put up no money to gain her freedom. However, if she breaks court-imposed travel restrictions or fails to show up for any court appearances, the government will force her to come up with the money.

Escorted by her lawyer and two unidentified men, she left the federal courthouse without speaking to reporters and walked quickly east down Fifth Street as news photographers and videographers snapped her photo and recorded her image.

As closing coordinator, Marksberry represented the company at home closings, where homebuyers receive titles to their homes and Erpenbeck Co. received payment. Portions of those payments were then supposed to satisfy bank loans that the company used to fund construction of the homes.

But at the direction of Bill Erpenbeck, Marksberry turned those funds over to the company. The money was then deposited into the company's accounts at Firstar Bank - now U.S. Bank - and Peoples Bank of Northern Kentucky, FBI Special Agent Kevin Gormley said during the court hearing.

Gormley said that from early 1999 to March 2002, Marksberry was involved in 295 transactions that defrauded about 260 individual homeowners, 32 mortgage lenders and 10 construction lenders of more than $33 million - $26 million of which remains unpaid.

"At (Erpenbeck's) direction, company employees simply did not pay off the applicable part of the construction loan as it was required to do and used the funds for the company's purposes,'' Gormley said. "(Marksberry) was aware that this activity was occurring.''

By mid-2000, Erpenbeck told Marksberry "that he hoped to maintain a $1 million 'float' with the money from the closings that should have been paid to the construction lenders," Gormley said.

"At the same time, (Erpenbeck) directed the company's title business to firms that he thought would permit construction lender payoffs to be hand-carried from closings" by Marksberry, he said.

But because the Erpenbeck Co. had run into financial problems and was spending more money that it was bringing in, the "float" eventually spiraled into the $33 million fraud that ultimately sank the company.

Marksberry was ordered to pay restitution and must forfeit one-half of the equity in the south Covington home she shares with her husband and funds in a 401(k) retirement account she has from a previous job at Provident Bank. The amount of the forfeiture was not revealed.

In May of 2000, when Matt Hauser bought a $103,770 condominium from the Erpenbeck Co. in the Lofts at Wetherington in West Chester, Marksberry handled the closing. Even though he still does not hold clear title to his condo and has been unable to sell it, Hauser said he thought Marksberry's punishment would be sufficient.

"It seems reasonable to me," Hauser said.

With guilty pleas from two major figures in the scandal, prosecutors say they are turning their attention to others involved in the fraud.

Gormley said that along with Marksberry, at least four other Erpenbeck Co. employees deposited closing checks into the company's bank accounts. He also said the head of the company's accounting department kept a list of loans involving diverted funds.

Neither Gormley nor Brinkman would identify the keeper of the list. Bill Erpenbeck's younger sister, Lori Erpenbeck, oversaw accounting for the company. A call to her lawyer Monday was not returned.

Federal prosecutors also are pursuing charges against two of the top executives at Peoples Bank: former president John Finnan and former vice president Marc Menne. Attorneys for both have said their clients are targets of the criminal probe.

In addition to their connection as the Erpenbeck Co.'s bankers, Finnan, Menne and their wives also were partners with Erpenbeck in a separate company called Jams Properties that involved the leasing of model homes built by the Erpenbeck Co.

Peoples' board of directors was forced to sell the bank to cover $16.8 million in checks diverted through the bank.


E-mail pcrowley@enquirer.com and jmcnair@enquirer.com.

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