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Brooke Corp Unit Sued for Fraud, Racketeering by Ex-Franchisees

Source: Kansas City Business Journal

Posted on 10 Apr 2009

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Dozens of former Brooke Corp. franchisees have filed a lawsuit alleging that the company engaged in fraud and civil racketeering.

Brooke Corp., once an Overland Park-based insurance franchiser, bbought and sold franchises through Brooke Credit Corp. and originated and serviced loans to franchisees through Aleritas Capital Corp.

About 75 former franchisees filed suit Wednesday against Aleritas Capital Corp. in U.S. District Court for the District of Kansas. The suit accuses the Brooke companies of inflating the price of agencies sold to franchisees, receiving kickbacks from the sellers and setting up a system that benefited from the failure of franchisees.

The suit also alleges that the Brooke companies never provided the full services and benefits promised in franchise agreements. Former franchisees said in the suit that Brooke did not live up to promises and agreements that served as the basis of their decision-making in agreeing to borrow money from Aleritas to acquire franchises.

The former franchisees ask that all their loans and interest originated by Aleritas be canceled. They also ask for damages and reimbursement of attorney fees and court costs.

In October, Brooke Corp. and Brooke Capital Corp. filed for Chapter 11 bankruptcy protection. Aleritas has not filed for bankruptcy but ceased conducting business, and its loan-servicing relationships were unwound.

Albert Riederer, the court-appointed bankruptcy trustee for the Brooke companies, said in December that the FBI carted away several boxes of documents. Riederer also said at the time that the Federal Deposit Insurance Corp., the Securities and Exchange Commission and other regulators also were investigating the company. Riederer could not immediately be reached for comment Thursday.