Illinois Company Involved in Lawsuit Against Brooke Buys 44.3% of Stock

An Illinois company connected to a bank involved in the lawsuit of the parent company of Brooke Corp. has taken control of 44.3 percent of Brooke’s stock.

Trim Creek LLC of Crete, Ill., now owns 6.43 million shares of Brooke’s common shares. According to an account in the Kansas City Star, Trim Creek is 70 percent owned by Crete Bancorporation Inc. of Crete, Ill. Crete also owns First United Bank of Crete, which made separate loans of $5 million and $7.87 million to Brooke Holdings, Brooke’s parent, in May 2008.

The Kansas City Star reported that in September, First United sued Brooke Holdings for allegedly defaulting on the loans. The stock was pledged as collateral.

In the lawsuit filing, Trim Creek said that it acquired the stock from First United in exchange for a $1.61 million promissory note.
First United filed its suit shortly after U.S. District Judge John Lungstrum appointed Albert Riederer, a former Jackson County prosecuting attorney and Missouri Court of Appeals judge, as a “special master” to take charge of Brooke and its affiliated businesses.

“Appointing a special master, Albert Riederer, rather than a receiver allows agent/owners to continue writing business as the litigation proceeds,” said Reid Nelson, a San Antonio, Texas, attorney representing over 200 agent/owners in a suit against Brooke Corp. Reid told Insurance Journal that other banks such as Fifth Third, DZ and HVB that are holding loans agents took out to pay the fee to become part of Brooke Corp. as franchisees are pressuring agent/owners to sign a letter saying they are responsible for their loans rather than wait for the Brooke to go through bankruptcy litigation. Reid is advising the agent owners to wait for the Brooke’s bankruptcy litigation to go through.

According the attorney, the banks are also asking agency owners to turn over all commissions to the bank through a “lock box” arrangement where the bank will take the rent first and then give the rest of the earned commissions back to the agents.

“I am advising against this arrangement as well,” Reid said.

Nelson is representing agent/owners in a lawsuit against Brooke Corp. from the following states: Texas, Louisiana, California, Florida, New Mexico, Colorado, Oregon, Washington, Michigan, Missouri, North Carolina, South Carolina, Tennessee Georgia, Ilinois, Ohio, Minnesota, and Virginia.

Nelson said that many Brooke franchisees involved in the lawsuit face bankruptcy themselves, many losing lifetime savings.

Brooke Corp., Brooke Capital and Aleritas Capital Corp. are all part of a financial services lending and franchising enterprise.The Brooke companies bought independent insurance agencies and other businesses from their owners with Aleritas funds and repackaged them as Brooke agency franchises sold to entrepreneurs using money borrowed rom Aleritas. The Brooke companies also repackaged and resold the loans as securities to Wall Street investors and to groups of mostly small Midwestern banks, the Kansas City Star story said.

In addition to the suit by the Illinois company, the Bank of New York Mellon’s alleges Brooke companies and Robert Orr its owner of fraudulently diverting at least $5 million. The money was originally pledged as payments on investments in loans that Aleritas made to insurance agency buyer, the Insurance Journal reported in a story earlier this month.

Brooke remains under the watchful eye of the Kansas Department of Insurance.

Sources: The Kansas City Star, Kansas Department of Insurance contributed to this story.

Topics Lawsuits Mergers & Acquisitions Agencies Illinois Kansas