Posted on 16 Dec 2008
The Kansas City Star reported that the FBI has launched an investigation of the once-booming Overland Park-based franchiser and financier of insurance agencies amid allegations of fraud.
According to Albert Riederer, the court-appointed special master charged with untangling Brooke’s complicated finances, FBI agents recently carted away “a substantial number of banker’s boxes” worth of documents.
Riederer, a former Jackson County prosecuting attorney and appeals court judge, said that the bureau had made an informal request for documents generated before his appointment as special master. He said that he and the lawyers and accountants helping him sort out the Brooke debacle were cooperating fully.
“I can tell you that they’ve asked for access to virtually all the records of the company,” Riederer said.
Bridget Patton, a spokeswoman for the FBI, confirmed that the FBI had begun an investigation but said it was in a preliminary stage and declined to comment further.
The collapse of Brooke, a once high-flying insurance and finance enterprise, has caused economic ripples nationwide. The company’s demise has left thousands of insurance agents in the lurch — many have been forced to close their doors — and dozens of lenders with soured Brooke loans or securities on their books.
Until its finances started unraveling earlier this year, publicly owned Brooke was one of the biggest franchisers of property and casualty insurance agencies in the United States, with about 900 locations.
At one time, the burgeoning Brooke empire boasted nearly 600 employees. The company’s payroll has been reduced by Riederer to a bare-bones crew of a dozen or so as the company winds down.
Founded in Phillipsburg, Kansas, in 1986 by Robert Orr, Brooke originally aimed to provide small-town banks with competitive insurance services to sell to their customers.
It expanded a decade later, setting up a lending arm to finance the sale of Brooke agency franchises to aspiring entrepreneurs. In 1998, it moved its headquarters to Corporate Woods in Overland Park. In 2003 it went public.
Brooke and affiliate Brooke Capital Corp. filed for Chapter 11 bankruptcy in late October, hoping to conduct an orderly wind-down of operations while completing the sale of the insurance business to two Kansas businessmen. The would-be buyers, however, withdrew their offer shortly after they made it.
The FBI investigation comes amid a cascade of lawsuits by banks and other lenders against Brooke charging that the company and Orr fraudulently diverted funds for their own benefit.
Leading the charge has been The Bank of New York Mellon, which set off the chain of events leading to Riederer’s appointment as special master when it sued Brooke and Orr in September.
The suit charged that Brooke, at Orr’s direction, had misappropriated millions of dollars and then destroyed evidence to conceal its actions.
Orr, through his attorneys, Kansas City lawyers Brian Gaddy and Matt Geiger, has denied wrongdoing, saying that he personally pledged and lost millions of dollars — and his ownership of Brooke — trying to save the companies.
“The notion he somehow profited from the fall of Brooke is misguided, to say the least,” Geiger said.
The Bank of New York Mellon served as the so-called indenture trustee for promissory notes that Brooke franchisees executed in return for loans they received from Brooke.
Brooke then bundled the notes into “securitizations” that were sold to investors, who were secured by the income and assets of the franchisee borrowers.