Sep. 12--Accusing them of "misappropriation of millions of dollars," The Bank of New York Mellon has sued Brooke Corp. and its subsidiaries and asked for the appointment of a receiver.

The lawsuit, filed Thursday in federal court in Kansas City, Kan., levels a litany of charges against Overland Park-based Brooke, which operates an insurance agency franchise business. The suit alleges that the Brooke companies and their principal, Robert D. Orr, diverted money that was supposed to be deposited in trust accounts to themselves and to an account at a bank they own -- Generations Bank, formerly Brooke Savings Bank, in Phillipsburg, Kan.

"The Brooke entities are in a rapidly deteriorating financial state and are facing a revolt by hundreds of their franchisees," the suit states. "Mismanagement, distrust and dishonesty abound throughout the Brooke parties, and a receiver is needed to control them."

Orr, who is Brooke's founder, said Thursday that he had not seen the suit but had been briefed about it. He expressed outrage at the allegations.

"I am angered beyond belief," Orr said. "They have taken a contractual dispute and turned it into something personal."

Brooke general counsel Carl Baranowski said the Brooke companies contended the money was part of about $8 million that organizations servicing the trust agreements, including Bank of New York, were refusing to pay Brooke without authorization from investors. Brooke thinks the trust account agreements allow the companies to collect the money as they have been doing, Baranowski said.

Brooke Corp. is a financial services holding company that grew rapidly in the late 1980s and 1990s by franchising insurance agencies across about half the U.S.

The company and its affiliates have been scaling back operations in their Overland Park headquarters to about four dozen workers and moving part of the operations to the original Phillipsburg home base, where about 200 workers provide support services for the enterprise.

The suit was filed just a couple of days after Aleritas Capital Corp., Brooke's financing subsidiary and one of the defendants in this case, hired a Chicago turnaround specialist to oversee the liquidation of its loan portfolio. The hiring of Michael Silverman of Silverman Consulting as interim chief executive was the latest executive changes at Brooke and its subsidiaries over the last few weeks.

The Bank of New York Mellon said it sued in its capacity as trustee for lenders who financed loans made by the Brooke businesses to their insurance franchisees.

According to the suit, the Brooke companies loaned money to the franchisees and then bundled those loans and sold them to institutional buyers. The buyers then issued notes to investors, mainly banks. The notes were secured by the income and assets of the franchisee-borrowers.

Revenues flowing to the franchisee-borrowers were supposed to be captured in certain trust accounts and repaid to the investors. Instead, The Bank of New York Mellon alleges, the Brooke companies and Orr diverted the revenues to themselves and set up a "phony records system" designed to stave off the servicer of the loans, Textron Business Services Inc.

Besides Brooke Corp. and Aleritas, the suit names as defendants BrookeCapital Corp., Brooke Capital Advisors Inc., Brooke Agency Services Co. LLC and Orr.

The Bank of New York Mellon is asking the court to appoint former Jackson County prosecutor Albert Riederer as receiver for the various businesses.

It also asks for unspecified damages equal to the allegedly diverted funds and for unspecified punitive damages.

An attorney for the bank, Nick Badgerow, declined to comment on the suit, saying it spoke for itself.

In August, Kendall State Bank in Valley Falls, Kan., sued Brooke Capital, alleging the company refused to pay the bank its $146,000 share of a $5 million loan participation.

To reach Dan Margolies, call 816-234-4481 or send e-mail to dmargolies@kcstar.com. To reach Gene Meyer, call 816-234-4883 or send e-mail to gmeyer@kcstar.com.

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