Oct. 3--Interests associated with a Dallas-based hedge fund manager have notified Brooke Corp. that they intend to redeem preferred stock and dividends in the Overland Park company worth $39 million.

In a regulatory filing Wednesday, Brooke said it had received the notice from an entity it identified only as "an accredited institutional investor" that acquired the preferred stock from Brooke in September 2006.

Filings from that period show that Brooke sold 20,000 shares of convertible preferred stock to HBK Master Fund LP, which is affiliated with HBK Investments, a large hedge fund manager with billions of dollars in investments.

Brooke said HBK Master Fund, as a result of a notice of default Brooke received last month from Stockton National Bank, had elected to redeem its shares. The shares would be redeemed at the price of $23.2 million, plus dividends totaling nearly $16 million.

It said HBK had demanded payment within five business days.

On Sept. 17, Stockton National Bank notified Brooke of its intention to accelerate the $4.09 million balance of a $4.5 million loan made in August 2007.

Albert Riederer, the former Jackson County prosecutor and appeals court judge who took over Brooke's operations that same day as a court-appointed special master, could not be reached for comment Thursday on how Brooke planned to respond to HBK.

Brooke, through its subsidiaries, provides insurance, banking and other financial services through a network of individually owned, branded insurance agencies and other businesses. Subsidiary Brooke Capital Corp. is a franchiser and insurance company operator, and subsidiary Aleritas Capital, formerly known as Brooke Credit Corp., is a specialty lender to franchise purchasers.

Last month, The Bank of New York Mellon sued Brooke and its subsidiaries for allegedly diverting at least $5 million pledged as payments on investments in loans that Aleritas made to insurance agency buyers.

Brooke founder Robert Orr, who was named as a defendant in the suit, maintains that he relied on the advice of legal counsel when he acted to recover fees and expenses owed by investors to Brooke Capital -- the crux of the dispute with the bank.

Orr earlier this week said he requested an immediate investigation by Brooke Capital's internal auditors of the investors' financial statements.

He also said the company's in-house and outside lawyers were not aware of any unethical or illegal conduct by the company or its management.

"These are difficult times for Wall Street," Orr said in a written statement dated Sept. 30. "However, the actions of these Wall Street investors have caused my family and close associates considerable heartache and significant financial losses. In the coming months and years, I will spend all of my time and resources pursuing remedies for this injustice."

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

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