It was one of those
deals that, in retrospect, sounded too good to be true: Buy a pay
telephone, let someone else do all the servicing and maintenance,
and collect a guaranteed 14 percent return.
"It was represented
as a very conservative investment," said Carol Krinke of Tacoma, who
plowed $95,000 of her retirement savings into 19 Alpha Telcom pay
"We couldn't lose our
money, we could get out any time, and the phones were insured by
Lloyd's of London."
Krinke and at least 100 other Washingtonians, none of those promises
Alpha Telcom, of
Grants Pass, Ore., is in bankruptcy, its few assets being sold off
by a court-appointed receiver. Lloyd's had nothing to do with the
company's phones. And Krinke and her fellow investors are unlikely
to recover much, if any, of their money.
Yesterday, the state
Securities Division said it has proposed fining Alpha and an
associated company, American Telecommunications, $500,000; fining 11
people who sold the pay phones a total of $340,000; and ordering all
of them to pay $3.9 million in restitution.
The pay phones are
considered "securities" under state law, Securities Administrator
Deborah Bortner said, and cannot be sold in Washington unless they
are registered with the state.
The proposed fines
were issued last month, Bortner said, but the agency didn't want to
make them public until all the respondents had been notified. The
respondents can request a hearing or seek to settle the matter for a
smaller amount, Bortner said.
Only three of the
individuals named yesterday are registered to sell securities in
Washington; the Securities Division plans to suspend or revoke their
At least 11 other
states already have moved to stop Alpha and American
Telecommunications from selling pay-phone investments within their
Pay phones are one of
several dubious investments being offered by certain insurance
agents, Bortner said. Of the 11 people named yesterday, nine are
licensed Washington insurance agents; another is a former agent.
In recent years, the
Securities Division has taken action against sellers of ATMs,
promissory notes and viatical settlements — contracts to receive
benefits from a terminally ill person's life-insurance policy.
One man named
yesterday, Glen Ottmar of Bellevue, also has been cited by the
Securities Division for selling viatical settlement contracts for
Beneficial Assistance of Maryland, and pay phones for ETS Payphones
of Georgia. Ottmar declined to speak on the record about the
Earlier this month, a
federal judge in Oregon found that Alpha had started out in 1986 as
a legitimate business but eventually degenerated into little more
than a Ponzi scheme, in which money from new investors was used to
pay earlier investors.
Alpha's pay phones
never generated enough revenue to cover the promised payments,
according to the ruling.
Nearly a year ago,
Washington joined with 24 other states and the District of Columbia
to crack down on pay-phone scams. At the time, the regulators
estimated that 4,500 people across the country had lost as much as
$76 million in such schemes.
Drew DeSilver can
be reached at 206-464-3145 or