INVESTMENT CASE Ruling: Agent must pay $5.2M

Valley residents lost their life savings by investing in pay phones, a lawyer says.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
John Prokop, a Boardman insurance agent and investment adviser, violated federal securities law and must pay $5.2 million to 46 people or families who lost money investing with him, a panel said.
An arbitration panel of the National Association of Securities Dealers ruled Friday that the owner of Pro Insurance sold unregistered securities and fraudulently misrepresented investments.
The cases mostly dealt with ETS Payphones, a Georgia-based company that sold investments in pay phones, said Joel Goodman, an attorney with Goodman & amp; Nekvasil, the Clearwater, Fla., law firm that represented the investors.
Scheme
The investors claimed at an August hearing that the ETS investments were a Ponzi scheme, not a conservative investment as they were portrayed, Goodman said. In a Ponzi scheme, dividends are paid to investors from money collected by subsequent investors, not from earnings on the investments.
Goodman said nearly all of the investors are from the greater Youngstown area, and many lost their life's savings. The judgments for investors ranged from $8,000 to $1.5 million.
Goodman said the investments were portrayed in advertising throughout the community as "guaranteed" and "no risk."
The three-member arbitration panel ruled that Prokop "committed gross negligence, fraudulent inducement and fraudulent misrepresentation."
Prokop said he is "very disappointed" in the decision but declined to comment further because he hadn't seen it. He said he would discuss his options with his lawyer, Edward Lavelle of Warren. Lavelle said he doesn't comment on his clients' cases.
Goodman said judgments of the arbitration panel can be appealed only on specific grounds, such as that the panel exceeded its authority or was biased.
The investors' cases were taken to the panel under NASD regulations that require all disputes be settled by that process, instead of in court, Goodman said.
The panel ruled that Prokop pay $3.1 million in compensatory damages for money that the investors lost, plus interest. It also ruled that he pay $1.6 million in punitive damages and nearly $500,000 in sanctions.
If judgments aren't paid, investors can seek to have the judgment transferred to a court so it can be enforced, he said.
Other investments
Besides pay phones, other investments in the cases included ATMs and viaticals, which is buying the life insurance policies of people with terminal illnesses.
In 2002, the Ohio Department of Commerce ordered Prokop to stop selling pay phone investments and viaticals. It said he violated state securities law by selling unregistered securities.
State records said Prokop sold $9.6 million in pay phone investments to 328 investors from 1997 to 2000. He earned 12 percent commission on each sale, and the deals promised investors a 14-percent annual return, the state said.
Prokop sold $6.1 million in investments in other people's life insurance policies to 224 investors during the same time, the state says. The investments promised a 42 percent total return, and earned Prokop a 9 percent sales commission, the state says.
Prokop said he stopped selling those investments, and his business is doing well by selling life insurance and annuities.
shilling@vindy.com