The Kentucky bankers who were in cohorts with a homebuilder convicted of stealing $34 million in loan closing checks have pleaded guilty to federal bank fraud charges.
John Finnan, 50, who was president of the defunct Peoples Bank of Northern Kentucky, and Marc Menne, 47, an executive vice president who oversaw commercial lending, could spend at least nine years and as many as 11 years in federal prison, Judge William Bertelsman said during an hour-long hearing Tuesday in Covington, Ky.
The bankers also face up to $1 million in fines and must pay restitution of as much as $11 million. Bertelsman set sentencing for Oct. 29. Both men were released without posting bond, though Finnan — who now lives in the Florida panhandle — was required to surrender his passport.
“They have plead guilty … to old fashioned bank fraud,” U.S. Attorney Gregory Van Tatenhoven said in an interview after the hearing. “They ended up lining their own pockets in the midst of the collapse of the spiraling downward of the Erpenbeck corporation.
“The victims lost money…just as if they’ve been robbed,” Van Tatenhove said. “In the words of my mother, (the bankers) shoulda known better. The bottom line here appears to be greed.”
Finnan and Menne plead guilty to, bank fraud, willfully misapplying bank funds and drafting phony loan documents and applications.
Finnan, who was accompanied by his wife, Sue, and a sister, greeted Menne with a firm handshake and a smile when they met in the courtroom just prior to the hearing.
Menne was actually smiling as he chatted with lawyers and others in the courtroom. His wife, Alice, and the couple’s three teenage daughters attended the hearing.
Erpenbeck has already pleaded guilty to bank fraud and is serving a 30-year federal sentence in Florida for his role in a scheme to steal $34 million in home closing checks. The checks were supposed to pay off construction loans but instead were diverted into Erpenbeck’s accounts at Peoples and U.S. Bank in Cincinnati.
In February of 2001, Provident Bank in Cincinnati “detected and ended” Erpenbeck’s check-kiting scheme, according to court documents released Tuesday.
“As a result, the accounts of The Erpenbeck Co. at Peoples Bank … were overdrawn,” prosecutors said in the court documents.
To cover the overdrafts, Finnan and Menne loaned an Erpenbeck subsidiary just over $2 million. To hide the real reason of the loan, the bankers filed backdated paperwork indicating “the stated purpose” of the loan was to build 32 town homes in northern Kentucky.
But $2 million was not enough to cover all of Erpenbeck’s overdrafts. So Finnan and Menne made nearly $4 million in loans to Erpenbeck’s father, Tony Erpenbeck, who has pleaded guilty to obstruction of justice for his role in the scheme and is awaiting sentencing.
Once again the bankers took steps to hide the true nature of the loans.
Still, more money was needed to cover Erpenbeck’s financial problems. But Peoples was at its lending limit to the company. So Finnan and Menne brought in three other Kentucky banks from and put together $29 million in participation loans for Erpenbeck.
Finnan and Menne misled the banks by telling them the money was for Erpenbeck’s cash flow, prosecutors said.
Finnan, Menne and their wives were also in business with Erpenbeck through a company called JAMS. Beginning in 1997, JAMS bought 25 Erpenbeck model homes with no down payments and then leased the homes back to the Erpenbeck company.
To get loans to buy the homes, Finnan and Menne falsified loan documents to show down payments had been made, prosecutors said. JAMS was actually buying the houses at below market costs, but were receiving loans over the purchase price.
The extra money was split between Finnan, Menne and Erpenbeck, Van Tatenhoven said.
Related:
Sister Pressured to Take Fall for Brother in Fraud Case
Cincinnati builder Bill Erpenbeck thought about killing sister Lori, father told her.
Bankers, Appraiser Accused in Builder Fraud Case
Builder A. William Erpenbeck, Jr. directed his employees to deposit checks made out to construction lenders to the company’s own bank account.
