An Associated Bank employee and a real estate company owner from Minnetonka were charged Wednesday by a federal grand jury in a conspiracy to defraud the bank on at least 21 loans totaling more than $4 million.

Eric Richard Krahnke, 50, of Ramsey, and Michael Ian Striker, 55, of Minnetonka, jointly face one count of conspiracy and 21 counts of bank fraud. Each man also faces one of two separate counts of money laundering related to the alleged conspiracy. Neither could be reached Wednesday for comment.

According to the indictment, the conspiracy took place in 2003, when Krahnke worked as a construction loan officer for the bank and also owned an independent mortgage brokerage called Worldwide Mortgage & Investments. Striker, president and sole owner of a real estate investment firm called U.S. Equities of Minnesota Inc., was one of Krahnke's customers.

Between March and October 2003, the indictment says, Striker submitted 21 loan applications through Krahnke that contained false or misleading information; the applications overstated his and U.S. Equities' finances. Striker also allegedly submitted inflated appraisals to justify loan amounts exceeding the true market value of the properties.

Krahnke manipulated the bank's loan approval processes to fund the loans, yielding more than $724,000 for Striker personally at the closings, the indictment says.

The money was supposed to go to construction financing, but Striker did little if any rehabilitation work on the properties, the government says. Instead, he allegedly used the money to pay other expenses and debts unrelated to the purchased properties.

In some cases, the properties were not vacant rehab projects as Striker had told the bank, the indictment says. Rather, they were occupied by homeowners seeking to avoid foreclosure. The homeowners had signed the property titles over to Striker or to companies he was working with in an agreement to repurchase the homes on contracts for deed, the government says.

Krahnke authorized payments to Striker for 100 percent of the loan in lump sums rather than following standard construction loan procedures to issue payments as the rehab work was completed, the indictment says. It says Krahnke got his normal bank commissions on the loans, and Striker paid him a "broker fee" that usually amounted to 3 percent of the loan proceeds.

Striker also gave Krahnke "a Rolex-brand watch worth several thousand dollars," which violated the bank's rules against accepting bribes or kickbacks, the indictment says.

Dan Browning • 612-673-4493