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 phones.

"We couldn't lose our money, we could get out any time, and the phones were insured by Lloyd's of London."

Unfortunately for Krinke and at least 100 other Washingtonians, none of those promises was true.

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 registrations.

At least 11 other states already have moved to stop Alpha and American Telecommunications from selling pay-phone investments within their borders.

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 allegations.

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 ddesilver@seattletimes.com.