Crime & Courts

6 Kansas executives face fraud charges

KANSAS CITY, Mo. —The Securities and Exchange Commission has charged six executives of Kansas-based Brooke Corp. and two of its subsidiaries with hiding critical information from investors and conducting financial fraud, according to a criminal complaint.

The SEC said five executives have agreed to settle the charges that were filed earlier this month in U.S. District Court in Kansas City, Kan.

They include:

* Robert D. Orr of Smith Center, Kan., founder and former chairman of the board of Brooke Corp., former CEO and chairman of the board of Brooke Capital, and former chief financial officer of Aleritas

* Leland G. Orr of Phillipsburg, former CEO, CFO and vice chairman of the board of Brooke Corp. and former CFO of Brooke Capital

* Michael S. Lowry of Austin, Texas, former CEO and a member of the board of Aleritas

* Michael S. Hess of Smith Center, former CEO and member of the board of Aleritas

* Travis W. Vrbas of Phillipsburg, former CFO of Brooke Corp. and Brooke Capital

Lowry will pay $413,504, Hess $250,000 and Vrbas $130,000. The court hasn't said how much the Orrs, who are brothers, will owe.

A sixth man, Kyle L. Garst, of Overland Park, former CEO, president and member of the board of Brooke Capital, is working to reach a settlement, said his attorney, Martin Berliner.

The complaint describes complicated financial maneuvers that misled 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.

"It's kind of a moral victory," said John Fowler, president of First State Bank of Burlingame in eastern Kansas.

Brooke, founded in the northwest Kansas town of Phillipsburg in 1986, set out to provide insurance services for small-town banks to sell to their 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, it moved to Overland Park and went public in 2003.

Robert Orr said in a written statement that the credit crisis in 2008 was difficult for lenders like Aleritas Capital Corp. and that he inherited problems after he agreed in March 2008 to help the company address liquidity problems triggered by a failed hedge fund refinancing that occurred earlier that month.

He said he was restricted in what he could say because of his agreement with the SEC.

Message left for Leland Orr, as well as Lowry, Hess and Vrbas, at their homes or through their attorneys weren't immediately returned.

After Brooke declared bankruptcy in late 2008, hundreds of insurance franchises failed. Lawsuits persist as finances remain in question.

More than 200 jobs were lost in Phillipsburg, which has about 2,300 residents and once counted Brooke among its largest employers. City clerk Brenda Chance recalled that there once was a time the town was overjoyed by the growth of Brooke.

"I think there are still some who are looking for employment," Chance said. But she stressed, "I think overall we've rebounded."