Criminal case in Brooke failure draws mixed reactions
07/05/2013 6:16 PM
07/05/2013 6:16 PM
Overland Park-based Brooke Corp. collapsed five years ago, saddling investors, lenders and others with millions of dollars in losses.
Last week, the criminal case against its two top officials wrapped up with what for many were scant results.
Brooke founder Robert Orr pleaded guilty to one count of making false statements to the Securities and Exchange Commission. All charges against Leland Orr, his brother and Brooke’s chief executive officer, were dismissed.
Both men had faced multiple charges, some of which individually meant up to 20 years in prison with a conviction.
Prosecutors, however, are recommending no jail time for Robert Orr, who faces sentencing in October. The government is asking for three years of probation and a $48,000 fine.
“That’s amazing,” said Leo Wolfe, head of United Bank & Trust in Marysville, Kan. “A lot of Kansas banks lost a lot of money.”
Attorney Erlene Krigel, who represented several insurance agents in a lawsuit against Brooke, called the outcome disappointing. She cited “all the creditors and all the individuals and all the agencies where people lost their business, went out of business or are being sued by their bank. It goes on and on and on.”
Federal prosecutors handling the criminal charges against the Orrs and attorneys for both men declined to discuss the case or the outcome.
Brooke, whose shares traded publicly, was part of a group of companies that sold insurance agency franchises, financed the franchise buyers and provided support services. Many of the loans to franchise buyers were sold to banks and investors.
The outcome of the criminal case strikes a sharp contrast to the financial carnage that Brooke left behind.
Detractors had called the company the Enron of the insurance industry, a reference to the Houston-based energy firm whose 2001 collapse led to convictions of top officers.
Five key Brooke group officers, including the Orr brothers, settled civil fraud charges brought by the SEC by agreeing to pay more than $2 million.
The brothers also were banned from the banking industry and from leading any publicly traded company.
An arbitrator found evidence to support civil racketeering claims and ordered Brooke and several affiliated companies to pay a Dallas insurance agency owner $7.2 million.
Roger Cunningham never collected as Brooke entered bankruptcy a week later.
To him, the outcome of the brothers’ criminal prosecution was meager, but it was enough.
“Everybody wishes it could be more,” Cunningham said, though Robert Orr did “plead guilty to a felony. He’s a crook.”
In Cunningham’s arbitration victory, the arbitrator found that Brooke and the other companies had “derived income from a pattern of (civil) racketeering activity” and posed “a continuing threat of racketeering activity.”
A year later, however, a federal judge threw out a lawsuit by 75 insurance agents that charged the company with racketeering and fraud.
Also, the federal judge in the SEC’s civil case found mitigating circumstances when assessing penalties against Robert and Leland Orr.
Judge Sam A. Crow, in a 27-page ruling in 2012, ordered the brothers to repay more than $1 million in ill-gotten gains and tacked on nearly $200,000 in interest charges. He accepted the SEC’s charge that they had violated securities laws and harmed investors, triggering hundreds of millions of dollars in losses in the region.
But Crow levied only $68,000 in penalties, citing the brothers’ “ability to pay” and their efforts to deal with Brooke’s financial crisis.
Specifically, he wrote, the Orrs “assumed responsibilities for the struggling corporations, committed more of their personal financial resources to the different ventures and, as a result of the latter corporate failures, they are now bankrupt and lack the financial means to pay any significant penalties.”
Moreover, Crow rejected what he called the SEC’s “cynicism that the defendants (the Orrs) were only motivated to save their own wealth” in seeking to prop up their companies illegally.
Others who weren’t damaged by Brooke’s failure saw Robert Orr’s plea as confirmation of claims that Brooke’s demise was more than a financial collapse.
“The guilty plea is completely consistent with what our position’s been all along,” said Ben Mann, an attorney for Albert Riederer who was appointed by a court to serve as special master overseeing Brooke.
Riederer, a former Jackson County prosecuting attorney and appeals court judge, died in December. The trustee overseeing Brooke’s bankruptcy case could not be reached.
Mann said Riederer’s referrals to federal investigators ended with Robert Orr’s guilty plea — in short, “evidence of criminal conduct there. How much was the result of a compromise.”
The compromise surprised some who remained active in the case recently.
United Bank in Marysville had settled its dispute with Brooke, although it continued to work with FBI investigators.
Tim Allen, the bank’s senior loan officer, said he had spoken with an FBI agent two weeks before the criminal case concluded.
“They were still digging,” Allen said. “They were as frustrated as we that nothing had been accomplished.”