Jan. 20--Contending that the special master for Brooke Corp. has improperly withheld $4.8 million from banks and insurance agents, The Bank of New York Mellon has asked a judge to intervene.

In court documents filed Friday, the bank alleged that investors in Brooke's notes and the insurance agents "are in a worse position today than they were in September 2008," when, at the bank's instigation, Albert Riederer was appointed special master to oversee Brooke's operations.

The bank wants U.S. District Judge John Lungstrum to compel Riederer to distribute incoming insurance sales commissions to investors who financed the purchase of Brooke loans and to Brooke agent-franchisees around the country.

Riederer, a former Jackson County prosecutor and former appellate judge, could not be reached for comment Monday.

Riederer was appointed special master to run Brooke's operations shortly after The Bank of New York Mellon sued Brooke and various affiliates in September, accusing them of fraudulently diverting funds due the bank. The bank serves as trustee for lenders who financed loans made by the Brooke companies to Brooke's insurance franchisees.

Brooke responded at the time that the money in question was a portion of about $8 million that organizations servicing the trust agreements, including The Bank of New York Mellon, were wrongly refusing to pay Brooke.

Shortly after his appointment, Riederer laid off most of the remaining employees at Brooke's Overland Park headquarters and its Phillipsburg, Kan., processing center.

In late October he placed Brooke and Brooke Capital Corp., an affiliate, in bankruptcy. Another affiliate, Brooke Investments, filed for bankruptcy protection a week later.

Brooke's collapse has left thousands of insurance agents in the lurch and dozens of lenders with soured Brooke loans or securities on their books.

The Bank of New York Mellon wants Lungstrum to order Riederer to transfer all sales commissions held by Brooke Agency Services Co., an affiliate set up to receive money from agents and insurance companies, to a so-called master receipts trust account at the bank.

It also contends that Riederer "has been seriously behind in opening mail, raising the danger that insurance agent sales commission checks from insurance companies are not being timely deposited; indeed, the Special Master has not provided any accounting of funds deposited since Dec. 1, 2008."

In addition, the bank says that Riederer "has not properly defended, or even advised" it about various arbitration actions commenced against Brooke businesses.

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

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