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Brooke founder pleads guilty

6/28/2013

By HEATHER HOLLINGSWORTH

Associated Press

KANSAS CITY, Mo. — The founder of failed Kansas-based insurance franchising business Brooke Corp. has pleaded guilty to providing misleading information in a federal securities filing.

Robert D. Orr, formerly of Smith Center and now living in Denver, admitted Thursday to one count of making false statements, the U.S. attorney’s office said in a news release. He initially faced several other charges, including conspiracy to defraud the Securities and Exchange Commission and bankruptcy fraud.

Orr is set to be sentenced Oct. 7. Prosecutors agreed to recommend three years of probation and a fine of $48,000.

Brooke Corp., founded in the northwest Kansas town of Phillipsburg in 1986, set out to provide insurance services for small-town banks to sell to customers. As it added locations and employees in about 30 states, it spun off Brooke Capital Corp., responsible for franchising insurance agencies, and Aleritas Capital Corp., the lender for insurance agency franchises and other businesses. Eventually, the parent company moved to Overland Park and went public in 2003.

Orr admitted in his plea that while he was chairman, the company submitted a 2007 annual report that made its investment in Brooke Capital Corp. appear more financially sound than it actually was. Prosecutors said Orr knew the report didn’t include the specific number of failed Brooke Capital franchise locations or the amount of money being spent to prop up struggling franchises.

Previously, Orr; his brother, Leland G. Orr; and several other executives of Brooke Corp and its subsidiaries settled charges with the SEC.

In a 2011 criminal complaint, the SEC described complicated financial maneuvers that mislead lenders and agents. The same loans were sold or pledged as collateral to more than one lender and money was shuffled among Brooke entities on a daily basis to avoid overdrafts. Lenders and investors — both in the U.S. and internationally — lost hundreds of millions of dollars.

After Brooke declared bankruptcy in late 2008, hundreds of its insurance franchises failed.

Leland Orr, the former CEO, CFO and vice chairman of the board of Brooke Corp. and former CFO of Brooke Capital, also faces criminal charges and is set for trial on Feb 24.