BOARDMAN Insurance broker regrets troublesome investments
The state says a Boardman agency sold nearly $16 million worth of investments improperly.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
BOARDMAN -- John Prokop of Pro Insurance, who is being sued by investors and facing allegations that he broke state security regulations, says he is done selling two types of unusual investments.
Because of the controversy, Prokop said he regrets getting into investments in pay phones and life insurance policies of people dying of AIDS and other diseases.
"We got off track," he said.
He said his business remains strong, however, because it mainly sells life insurance and annuities. The other investments made up only about 10 percent of his business.
Complaints filed: The Ohio Department of Commerce has filed allegations that Prokop violated the state's securities regulations. Prokop has until Monday to request a hearing on the allegations before a hearing officer.
Dennis Ginty, a department spokesman, said the department is seeking an order preventing Prokop from selling such investments improperly. If he is found to have violated state regulations, this would be noted on his record. The state is not seeking to take away his securities license.
Prokop said the state action won't affect him because he stopped selling the investments 18 months ago when companies he was working with ran into financial trouble.
The state says Prokop should have registered the investments and notified his broker about them.
Pay phones: State records say 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 says.
Prokop sold $6.1 million in investments in other people's life insurance policies, called viatical settlements, 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.
Ginty said these investments can be sold in Ohio but must be registered.
Prokop said the state didn't make that position known while he was selling them. He said the companies he was working with were licensed in Florida.
The pay phone investment involves investors' buying one or more pay phones, which are then leased, managed and maintained by a pay phone company.
The viatical settlement involves investors' buying the life insurance policy of a terminally ill person at a discounted rate. The policyholder and family are paid a percentage of the face value of the policy for living expenses, and the investor becomes the beneficiary when the policyholder dies.
Prokop said he has many investors who made money on viatical settlements, which he thinks also are good deals for the dying people.
Trouble erupts: He said problems arose, however, when he began dealing with a broker who has been accused of fraudulently using investors' money. He said about a dozen of his clients had investments through this broker, and he said they will receive the money they are owed through recovery of funds from the broker and Prokop's own insurance on his business.
Prokop also is facing lawsuits in Mahoning County Common Pleas Court related to these investments.
Prokop said the pay phone investments were working well until the company managing the phones ran into financial troubles as it expanded outside the United States.
The other allegation filed by the state says that the investments in pay phones and viatical settlements were not authorized by IAC Securities, which was Prokop's broker. Regulations prohibit sales agents from offering securities that are not authorized by a broker.
Prokop said he didn't notify his broker of the investments because the broker was not involved with them.