The Greater Falls

July 6, 2004: On June 22nd John Finnan and Marc Menne, former top executives at Peoples Bank of Northern Kentucky, appeared in federal court in Covington, Kentucky and pled guilty to taking part in a massive real estate rooted bank fraud. One which pushed Peoples Bank over a cliff, impacted dozens of other banks in the Tristate area of Kentucky, Ohio and Indiana and left hundreds of homebuyers, bank shareholders and construction sub contractors up fecal creek without a paddle. John Finnan was president of Peoples Bank. Marc Menne was executive vice president in charge of commercial lending. For years, Finnan and Menne had helped the Erpenbeck Company, one of the largest home builders in the greater Cincinnati area and the bank's biggest loan customer, maintain a financial false face. William "Bill" Erpenbeck was company president and along with his two brothers, part owner. Bill Erpenbeck and bank president John Finnan were long time friends. They were also undercover business associates.

In the late 90's, John Finnan, Marc Menne and their wives formed a private company named JAMS Properties LLC. JAMS bought dozens of properties from Bill Erpenbeck, using loans from banks smaller than Peoples. The JAMS crew and Erpenbeck ran a classic real estate scam. Mid level real estate professionals connected to Erpenbeck provided sign-offs on phony documentation, allowing JAMS to pump up the size of the loans they received via inflated property values and non existent down payments. JAMS pocketed the difference between fraud and reality and kicked back part of what they skimmed to Bill Erpenbeck. They then leased the properties back to him at above market rates.

According to Marc Menne's attorney as quoted in The Cincinnati Post (09/26/02) other Erpenbeck business buddies cut similar real estate deals with Bill. Believing that if property values eventually appreciated to inflated loan levels everything was jake. Bill had lots of friends. A onetime baseball pitcher on the regional level, Bill was charismatic, open handed and overbearing. With a King Kong appetite for the good life, as delineated by Robin Leach. Bill liked to take crowds of guests on cruise ship bashes that lasted for days. On one he brought along scores of lucky Erpenbeck employees and their spouses. Each night Bill led them in repeated sing-alongs of his favorite song "American Pie". In between pouring tequila down their throats or beer over their heads. Employees could choose either option. Also along on this cruise were the Secretary of the Kentucky Economic Development Cabinet and bank president John Finnan. For them, the American Pie and booze baths were no doubt optional.

Bill Erpenbeck did business with a number of banks, not only Peoples. Including Provident, Bank One and Firstar, which later became U.S. Bank. U.S. Bank was Erpenbeck's biggest lender. Somehow, Bill's lenders just didn't spot that by 2000, Erpenbeck sales were dwindling. And that Bill was illegally diverting millions of dollars in homebuyer payments meant to pay off Erpenbeck construction loans and hence, buyers' mortgages. The fraud nexus was home-sale closings. At this finalizing juncture in the home buying process, the parties involved, or their authorized representatives, appear in person to transfer the property title and deliver payment. Bill Erpenbeck was authorized by some of his lenders (including Firstar/U.S. Bank) to receive and hand deliver home buyer closing funds. But instead of delivering the funds to his bank construction loans, he was depositing them in Erpenbeck accounts at Peoples Bank and U.S. Bank. Peoples Bank received the lion's share.

At some home-sale closings, the closing agent was an Erpenbeck employee. The Erpenbeck Co. also employed people with past professional ties to some of their lenders. Which may explain why home buyers whose payments were diverted would sometimes receive fake loan satisfaction letters written on bank stationary. It's a well known fact that employees help themselves to paper. Stationary wasn't the only paper in flight. As well as diverting homebuyer payments Erpenbeck was kiting checks between various banks, including Peoples, Firstar and Provident. Mining the period when money is on the books but dosn't actually exist. In the Spring of 2001, Provident got the wind up and closed Erpenbeck Co. accounts. Peoples Bank got stuck with a hot potato: $2 mil in bad checks. Bank President John Finnan and Vice President Marc Menne went to work covering up the overdraft.

As Erpenbeck slid downhill Finnan and Menne threw their backs into covering Bill's overdrafts. Greasing some 8 million dollars in Peoples Bank loans. Keeping their JAMS real estate interests quiet. Attorneys for Peoples Bank say that though Finnan and Menne filed financial statements mentioning JAMS, the nature of the business was unclear. Apparently no one asked for clarification. Finnan and Menne also disguised the amount and purpose of loans given Erpenbeck. Some went to Bill's father, Tony Erpenbeck and were called investments in Ergenbeck Development. Loans which exceeded lending limits within certain time frames had dates altered. When Ergenbeck's needs grew beyond what Peoples Bank could meet, Finnan and Menne pulled more than a dozen other banks into the act. Rural ones that singly, wouldn't have been able to make the kinds of loans a developer like Erpenbeck required. Finnan and Menne helped arrange nearly $30 million in group "participation loans" from these banks. Though ostensibly for development projects, the majority of the money covered overdrafts. But Marc Menne, still looking out for JAMS, scooped out $36,000 so Bill Erpenbeck could meet monthly lease payments on the original scam pumped JAMS properties.

Finally Erpenbeck collapsed. The company was a slow payer with its subcontractors. Slow turned no. Checks didn't clear. Phone calls went unanswered. And when Provident closed its Erpenbeck account in the Spring of 2001, they filed a suspicious activity report (SAR). SARs are a financial crime fighting tool born in the late 90's. Prior to SARs, when financial institutions reported possible malfeasance they were required to file multiple forms with a number of federal agencies. SARs centralized and streamlined the process. By early 2002 the FBI, the IRS and the U.S. Treasury Department were knocking on doors connected to Erpenbeck. The Federal Deposit Insurance Corporation (FDIC) was calling John Finnan at Peoples Bank every day. The atmosphere turned post Ponzi poisonous.

When officially informed of the connection between JAMS and Erpenbeck, the Peoples Bank board fired Finnan and Menne. Bill Erpenbeck, hoping to make new friends in federal places, taped conversations with old friend John Finnan. On one tape Finnan expressed hope Erpenbeck would still be able to sell enough homes to make problems go away. Another tape was discovered under a couch cushion when Bill's furniture was auctioned off in bankruptcy proceedings. In a phone conversation quoted by the 06/15/03 Cincinnati Enquirer, Erbenbeck and Finnan discussed how U.S. Bank was reacting to having to absorb a $13 million shortfall on Erpenbeck loans. Bill Erpenbeck told Finnan he'd spoken to Roger Watson, a former executive vice president of commercial real estate at U.S. Bank and that: "...he thinks it is very important to keep it quiet because he said it's a huge embarrassment for their company." In general, the Tristate area real estate professionals or financial institutions that had done business with Erpenbeck loudly proclaimed their ignorance of the company's shaky condition and illegal practices. And pointed their finger at the other guy's laxness or complicity when the specter of law suits loomed.

Meanwhile back at the Erpenbeck homestead the scene was equally sweet. Bill tried to pressure his sister Lori, the Erpenbeck Co. head accountant, into claiming the fraud was mainly her idea. Dad Tony agreed she should take the fall. Lori said no way. Bill was pissed. Tony told Lori that Bill was planning to kill her. Lori wore a wire for the FBI and taped Tony and Bill getting heavy. Both were arrested for obstruction of justice. Both were convicted. This April, Bill Erpenbeck got 30 years on those charges. Which run consecutively with the 30 years he's serving for bank fraud. On July 1st at a group sentencing, Big Daddy got close to 6 years for witness tampering and Little Lori got a year for bank fraud. Her wire wearing gained her points. Both Lori and Michelle Marksberry, Bill Erpenbeck's faithful closing agent, wept copiously in court. Michelle got 2 years. Both women, who are in their 40's, claimed male domination was behind their actions. Three more Erpenbeck brothers are on the waiting list for prosecution. To paraphrase the Ramones-- they're a happy family. Gabba gabba hey.

After the dust settled a goodly number of small banks were left to absorb $24 million dollars worth of dead participating loans. Peoples Bank folded: its carcass and remaining assets bought by a rival. $16.8 million was set aside from the sale to settle with homebuyers Erpenbeck defrauded. Since their homes had been collateral for the construction loans Erpenbeck didn't repay, some homeowners faced foreclosure or hung in title limbo for several years. Others found themselves carrying mortgages they thought they'd paid or responsible for ones on unfinished skeletons standing open to the elements. Factoring in anxiety, the sense of social betrayal, plus years of legal wrangling, few homebuyers got back all they lost. When Peoples Bank president John Finnan and Vice President Marc Menne pled guilty in federal court on June 22nd their pleas related to the initial JAMS real estate fraud, conflict of interest between JAMS and Peoples Bank, and covering up Erpenbeck overdrafts. None related to Erpenbeck's diversion of homebuyer payments. Even though Peoples Bank was where the majority of those payments were deposited. And even though most of the payments were in checks made out to banks, not to the Erpenbeck Co. Still lined up for lawsuit redress are shareholders who owned the 20% percent of Peoples Bank not held by bank directors and executives, plus assorted construction subcontractors who were misled by the false face of Erpenbeck. The one held firmly in place by John Finnan and Marc Menne.

When news of the Peoples Bank disaster first broke blame fell mainly on the evil house of Erpenbeck. Even now some like to think of John Finnan and Marc Menne as good hearted guys led astray by devil boy Bill Erpenbeck. When it comes to real estate related bank fraud few want to look too high. Or consider systemic patterns of corrupt co-dependency. In this particular instance law enforcement spotted a pair of vultures perched on a pinnacle. Albeit on a mid size mountain. Some say that X bank president John Finnan, as part of a plea deal, will assist in further adventures in bird watching.

The Lesser Falls

Summer is hot at Corruption Cascades. Where crooks and cronies come to take the waters. And anything else that isn't nailed down.

Carola Von Hoffmannstahl-Solomonoff

"They were all in love with dying, they were drinking from a fountain that is pouring like an avalanche coming down the mountain..."

Pepper, Butthole Surfers, 1996

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