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Prokop Ordered to Pay $5.18 Million for Pay Phone Scheme
By Andrea WoodYOUNGSTOWN, Ohio -- High-profile insurance agent John Prokop isn't talking, and neither is his lawyer. But the attorney who won $5.18 million in damages for the 53 Mahoning Valley residents who bought fraudulent investments that Prokop promoted is talking -- and he's angry."John Prokop jeopardized people's lives, their existence and their health for $10 million in sales of pay phones from which he pocketed commissions of more than $1 million," fumed Joel A. Goodman, a partner in Goodman & Nekvasil, Clearwater, Fla. "He promoted fraudulent schemes as safe, guaranteed investments to elderly people, retirees, people who had severe health problems, people who were told to mortgage their homes because their payphones would do better than their homes."Goodman, armed with a dispute resolution award handed down Oct. 15 by the National Association of Securities Dealers (NASD), put into personal terms what the NASD arbitration panel stated following a hearing Aug. 30 and Aug. 31 in Pittsburgh. "Prokop, in his securities sales practice, committed gross negligence, fraudulent inducement and fraudulent misrepresentation," the arbitrators ruled. The award -- $3.14 million in compensatory damages and $1.57 million in punitive damages and $500,000 in sanctions -- "results directly from the panel's findings of security law violations and fraudulent and negligent sales practices."Prokop is the owner of Pro Insurance in Boardman, which he operates with his daughter, Lisa Marie Tokarsky. He was the largest seller of ETS Payphones in Ohio and the third-largest seller in the nation. In March 2002, the Ohio Division of Securities issued a cease and desist order against him. At the time, the state agency reported Pro Insurance illegally sold $9.64 million worth of investments in ETS Payphones Inc. of Georgia to 328 investors.Goodman filed his claim on behalf of 53 Mahoning Valley investors and the $5.18 million damages award covers only these plaintiffs.In a ruling handed down in January, the U.S. Supreme Court described ETS Payphone as a Ponzi scheme -- paying dividends with new investors' dollars not earnings -- that defrauded more than 10,000 investors of $300 million. The ruling overturned an appeals court decision that held the U.S. Securities and Exchange Commission lacked jurisdiction to accuse ETS officials of securities fraud because fixed returns were promised, not variable returns.The chief executive officer of ETS, Charles E. Edwards, was indicted in June on federal charges of wire fraud and money laundering.ETS lost $42 million in 1999 and $33 million in the first six months of 2000. The company filed for bankruptcy in September 2000.Prokop advertised the ETS Payphone investments on WKBN-AM, in "The Vindicator" and on billboards as guaranteed, no-risk investments with fixed rates of returns. Investors initially received monthly dividend checks, then nothing.Lewis and Jean Rotz of Lowellville consider themselves lucky."I wanted to buy more but my wife said no. Thank God I listened to her, for once," said Lewis Rotz.The Rotzes learned of the arbitrator's award Wednesday afternoon after a reporter called. "I'll find out for sure when I see some money but I'm glad he lost the case," Rotz said.The couple stands to receive $48,534.97 in damages, based on the ruling. Attorney Goodman said his firm "will do what's necessary to insure justice and payment."Because Prokop was found guilty of securities fraud, he cannot shield his assets through personal bankruptcy, Goodman pointed out. Prokop did not return calls seeking comment. He was quoted in yesterday's Vindicator as stating he was "very disappointed" in the ruling.His attorney, Edward Lavelle of Warren, twice sought to delay the arbitration proceedings. Lavelle showed up at the August hearing in Pittsburgh but left in the middle of the proceedings after arguing the arbitration panel was abusing its discretion. In essence, he argued, Prokop could not present an adequate defense because documents related to the payphone transactions remain in the possession of the Federal Bureau of Investigation.On Dec. 11, 2002, the FBI raided Pro Insurance. No criminal charges have been filed.Contact Andrea Wood at [email protected]"