FBI Launches Investigation of Bankrupt Brooke Corp.
Federal authorities have launched an investigation into the finances of bankrupt Brooke Corp.
The court-appointed special master for the Overland Park-based banking and insurance services provider, Albert Riederer, told The Kansas City Star for a story published on Dec. 12 that FBI agents recently carted off “a substantial number of banker’s boxes” worth of documents.
Riederer said the bureau had made an informal request for the documents before he was appointed special master and that he and his team of lawyers and accountants were cooperating.
“I can tell you that they’ve asked for access to virtually all of the records of the company,” he said.
FBI spokeswoman Bridget Patton confirmed the agency was investigating but declined to comment further.
Before filing for Chapter 11 bankruptcy protection in October, Brooke was one of the nation’s largest franchisers of property and casualty insurance agencies with 900 locations and almost 600 employees.
Founded in Phillipsburg, Kan., in 1986 by Robert Orr, the company set out to provide insurance services for small-town banks to sell to their customers. It later expanded into lending as it began selling its Brooke agency franchises, eventually moving to Overland Park and going public in 2003.
After filing for bankruptcy, the company planned to stay in operation while it sold its insurance business to two Kansas businessmen. But the deal fell apart, as did the company.
Its demise has left thousands of insurance agents across the country in limbo, with many closing up shop. In addition, dozens of lenders have been left holding Brooke’s bad loans and securities.
A number of banks and other lenders have filed lawsuits against the company, including The Bank of New York Mellon, claiming Orr and other company officials diverted millions of dollars for their own benefit and then attempted to destroy the evidence.
Lawyers for Orr have denied he did anything wrong, noting that he too lost millions of dollars and his ownership of the company while trying to save it.
“The notion he somehow profited from the fall of Brooke is misguided, to say the least,” said attorney Matt Geiger.
Brooke franchisees borrowed money from Brooke to set up their businesses, executing promissory notes in return. Brooke then bundled those notes and sold slices of them to investors, with The Bank of New York Mellon serving as indenture trustee for the notes.
Among the investors were United Bank and Trust of Marysville, Kan., which claims it lost $5 million; Citizens Bank & Trust Co. of Chillicothe, Mo., which claims it lost $9.5 million; and First United Bank of Crete, Ill., which claims to have lost $13 million.
The Bank of New York Mellon this week filed an amended lawsuit claiming more than a half-dozen instances of Brooke or its divisions diverting money meant to be deposited with the bank. In one instance, the bank alleges that Aleritas Capital Corp., Brooke’s financing arm, diverted at least $3 million beginning in January 2008.
The amended lawsuit also claims that Orr told representatives for two investor banks in September that he had misappropriated money meant for the securitization.
“Orr’s justification was that he and the Brooke Parties were owed the money and would take it by any means,” the complaint states.
The lawsuit also says Brooke and Aleritas employees e-mailed their concerns to company officials and the bank, including internal e-mails allegedly showing Orr directing the diversions.
Attorneys for the bank declined to comment or identify the employees.
Information from: The Kansas City Star, http://www.kcstar.com