By DUANE SCHRAG
Salina Journal
PHILLIPSBURG -- Brooke Corp., a banking and insurance company that recently moved its executive team from Overland Park to Phillipsburg, has been sued by a New York bank, which alleges Brooke misappropriated millions of dollars.
Brooke denies any wrongdoing and says that lawsuit is retaliation for its efforts to collect past due servicing fees.
Meanwhile, the owners of scores of Brooke franchises, such as Brooke Insurance and Financial Services, 2310 Planet, are watching the legal battle from the sidelines.
"It doesn't affect my policyholders at all," said Kent Lambert, who owns the insurance agency. "Their insurance is not written through Brooke; it's written with insurance companies we have contracts with."
According to a Brooke Web site, the company has 46 locations in Kansas and a handful in Missouri, Florida, Georgia, Virginia and Washington state.
The Bank of New York Mellon filed the lawsuit Sept. 11 in federal court in Kansas City against Brooke Corp., which is the parent company for a suite of corporations involved in franchising insurance agencies and a bank. The lawsuit refers to the companies collectively as the Brooke parties, and identifies Robert D. Orr and his family as controlling and operating them.
Last week, Orr resigned as an officer of Brooke Capital Corp.
"Personal animosity between securitization investors and me resulted from my efforts to collect past due servicing fees on behalf of Brooke Capital," Orr said in a press release. "To help prevent our squabbling from affecting Brooke Capital's business, I have resigned as an officer, although I remain a director and the largest shareholder."
Brooke Corp. posted a second-quarter pretax loss of $19.5 million on revenue of $31.8 million; its pretax net income for 2008 was a loss of $58.3 million on revenue of $66.5 million.
Messages to Brooke Corp.'s legal team were not returned Wednesday.
In its complaint, New York Mellon alleges that money that was supposed to be deposited in trust accounts was instead put into the parties' accounts, including accounts in their own bank, Generations Bank, formerly known as Brooke Savings Bank.
In a press release posted on its Web site, Brooke Capital expressed "dismay" at the lawsuit.
"Management believes that the suit was triggered by Brooke Capital's attempts to collect past due servicing fees from these securitization investors," it said.
According to the press release, on Aug. 19 Brooke Capital presented securitization investors with a plan for repaying past due servicing fees. A week later, it announced that collection of the fees was its top priority and that services to troubled borrowers might be discontinued if fees were not paid in full by Sept. 4.
"On Sept. 4, Brooks Capital attended a contentious meeting with major securitization investors, during which Brooke Capital again demanded payment of servicing fees," the company said in a press release. "Nevertheless, investors continued to delay."
A week later, New York Mellon, which is trustee for some of the financial transactions, filed its lawsuit. On Sept. 18, Albert Riederer was appointed special master of Brook Capital. His role will be to maintain the status quo until the dispute with securitization investors can be resolved.
Riederer was Jackson County attorney from 1980 to 1992, was chairman of the Missouri Employers Mutual Insurance Co., and has been on the Missouri Court of Appeals.
n Reporter Duane Schrag can be reached at 822-1422 or by e-mail at dschrag@salina.com.
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