Legal Challenge Mounts at Pre-Paid
By Melissa Davis
Staff Reporter
09/04/2002 03:38 PM EDT
Critics suing Pre-Paid Legal Services (PPD:NYSE - news - commentary - research - analysis) may soon have their day in court.
The Ada, Okla., company faces a raft of lawsuits for allegedly misrepresenting its product to customers and its income opportunity to its sales force. Pre-Paid has fought the claims, calling them without merit, and has sought to shift cases into arbitration or into its hometown courthouse.
But last month, judges in two states -- including plaintiff-friendly Mississippi -- repeatedly denied Pre-Paid's motions, putting the claims on track for trial in state courts. Now the legal services provider, which has no legal insurance of its own and has been slow in some eyes to disclose potential legal liabilities, could be headed for trial in some of the courtrooms most feared by corporate America.
Related Stories
Take-Two Blames Rumors for Its Recent Slide
Take-Two's Tumult Doesn't Include Many Analyst Downgrades
Take-Two's a Touchy Issue
Investors Hold Breath as Take-Two News Awaits
Take-Two Needs Another Take on Earnings Reports
"Pre-Paid put all its eggs in one basket in an attempt to avoid any jury trial," said Brad Pigott, a former U.S. attorney in Mississippi who's suing Pre-Paid on behalf of hundreds of unhappy customers in his home state. "But four judges have already ruled that our people are entitled to a final judgment -- that we do not have to go to arbitration -- and we think the other judges are going to agree."
Pre-Paid faces its first trial five months from now in Paulding, Miss., a small town in the southern part of the state. The company has been slapped with a total of nine lawsuits, each seeking $90 million in damages, in Mississippi state courts known for delivering runaway jury awards. The plaintiffs claim they were misled about the coverage provided under Pre-Paid's restrictive legal policies.
A separate lawsuit, filed in Oklahoma on behalf of Pre-Paid's sales force, could prove even more costly. In a court filing last month, Pre-Paid estimated the potential damages in that case at more than $315 million.
The putative class action lawsuit seeks to establish Pre-Paid's checks to sales associates as illegal loans that, under Oklahoma law, the company has no right to collect. The case is set for a class-certification hearing next March.
According to its most recent quarterly report, Pre-Paid also faces 22 material lawsuits in Alabama. These multiple-party lawsuits, like those in Mississippi, accuse Pre-Paid of promising far more legal coverage than the company actually delivers.
Early last year, Pre-Paid settled similar lawsuits just before they went to trial in Alabama. The company disclosed the existence of the lawsuits -- originally seeking $745 million in damages -- only after it paid a $1.5 million settlement to avoid the costs and risks associated with courtroom litigation.
Ron Thrash, a Houston securities attorney and certified public accountant, questioned that lack of disclosure.
"If they had $750 million of even highly speculative claims, that should have been a disclosure item," said Thrash, an attorney at Shepherd Smith & Bebel. "And if they have a pattern of these lawsuits -- and any track record of losing a certain number of them -- one might argue that they should be establishing reserves."
Instead, Pre-Paid has spent more than $120 million -- and borrowed additional cash -- to fund an aggressive stock buyback program launched three years ago. The company has established no reserves to satisfy potential courtroom losses.
Pre-Paid blames at least part of its legal trouble on short-sellers, who profit when a stock price declines. But short-sellers have scoffed at this notion, saying they learned of the litigation only after it was initiated.
More than 60% of Pre-Paid's stock is currently sold short. The stock closed Tuesday at $19.75, near the low end of its 52-week trading range of $15.05 to $31.75.
thestreet.com
Legal Worries Mount at Pre-Paid Legal
For Pre-Paid Legal Services
(PPD:NYSE - news - commentary - research - analysis),
Plan A is to soundly defeat the mounting wave of lawsuits it faces from customers, shareholders and its own sales force.
Plan B apparently doesn't exist.
The Oklahoma-based company -- which markets legal insurance as "essential" to its customers -- has no liability coverage of its own. Nor has it established any reserves to pay potential losses associated with lawsuits, dozens of which pose a material threat and could outstrip the company's bank account.
Pre-Paid's once-solid balance sheet could easily teeter. Last year the Securities and Exchange Commission ordered a dramatic accounting change that wiped out roughly three-quarters of Pre-Paid's assets, which now exceed liabilities by less than $40 million. That number threatens to shrink further, even without courtroom losses.
Recently, Pre-Paid sacrificed its debt-free status to accelerate an aggressive stock repurchase program with debatable returns. Although the company has reduced its share count by roughly 20% since 1999, it has often paid much more than its current $20 stock price to do so.
"Pre-Paid's stock buyback program can't just be considered brash or questionable corporate governance," one critic said. "These guys are one jury decision away from being insolvent -- and they won't be able to raise money or borrow money after that happens."
Already, 10% of shareholders' equity is tied up in loans to executives and unnamed "marketing consultants," whose balances rarely diminish. And Pre-Paid could use the cash. The company burned through every excess dollar -- posting working capital deficits the last two quarters -- to fund stock repurchases before finally turning to the bank.
Pre-Paid bulls have applauded the buybacks. They claim the stock is sorely undervalued, offering a rare growth investment in a miserable down market. Some have even circulated newsletters that place the "intrinsic value" of Pre-Paid's stock at $953.28 a share, based on a formula supposedly devised by billionaire value investor Warren Buffett.
Pre-Paid itself has described the stock as the best investment available for the company. Although the company has issued a blanket refusal to comment for any story published by TheStreet.com, it defended its aggressive stock buybacks in a recent press release.
"By continuing our stock repurchases," said Chief Executive Harland Stonecipher, "we are sending a strong and positive message to the market regarding our confidence in the company's fundamental value and its prospects for the future.
"We continue to believe very strongly the best is yet to come."
Going in Debt
In addition to $10 million for stock buybacks, Pre-Paid plans to borrow $20 million for construction of a new corporate headquarters, heralded as the "first skyscraper" in Ada, the rural Oklahoma town where the company is based.
To avoid default on these loans, Pre-Paid must comply with a variety of boilerplate covenants and one that could prove particularly challenging. It must retain at least half of all new customers for at least a year. In 2001, the company would have just scraped by with a 52.7% first-year customer retention rate.
Critics attribute Pre-Paid's massive turnover rate to a product that, they say, is worth only a fraction of the $25 it costs per month. Pre-Paid describes itself as a "legal HMO," charging a low fixed rate for a variety of legal services provided by designated law firms across North America. But some dismiss this comparison as nonsense.
They say medical HMOs pay the lion's share of their premiums -- more than 80% -- to the health care providers who service their customers. In contrast, Pre-Paid pays its "provider law firms" one-third of every premium dollar, roughly the same amount it pays its network marketers to sell the legal policies.
"At best, you're getting 34 cents of service for every $1 you pay," one said. "And you're probably not even getting that because the lawyers have to be making a profit."
Rebelling in the South
Judging from the rising stack of lawsuits, Pre-Paid customers increasingly believe the product provides a less attractive deal for themselves.
In Mississippi and Alabama alone -- two states known for runaway jury awards -- Pre-Paid faces 31 material lawsuits filed by more than 500 disgruntled customers who accuse the company of promising far more service than it delivers. Pre-Paid's list of exclusions -- including common legal needs like divorce and bankruptcy representation -- far exceeds its actual coverage, despite sales pitches that claim "everything is covered."
The company has faced legal defeats already. Some of the current lawsuits resemble complaints, seeking $745 million in total damages, that Pre-Paid disclosed only after settling the cases last year for $1.5 million.
Pre-Paid also disclosed in its latest quarterly report that it's being questioned by the Mississippi attorney general, ending consistent denials of regulatory problems despite a settlement last year with the attorney general's office in Wyoming.
And Justice for All
Oklahoma City attorney John Dexter, who's waging a legal battle on behalf of Pre-Paid associates, said he may be 180 days away from concluding the case he filed against the company more than a year ago.
Dexter's is the less publicized of two class-action lawsuits filed by Pre-Paid associates. The other, filed by a nationally recognized class-action law firm, accuses Pre-Paid of being an illegal pyramid scheme. In contrast, Dexter's lawsuit charges Pre-Paid with executing illegal loans that require sales associates to repay advanced commissions, with interest, when their customers cancel early. He describes his complaint, based entirely on contract law, as the simpler one to argue and win. Pre-Paid has said it would vigorously contest all pending legal actions.
"It's like taking Al Capone down for tax evasion as opposed to organized crime," Dexter said. "It's much simpler, but the end result is the same."
Short-sellers continue to bet heavily on the company's downfall. Although they've picked up some profits along the way, nearly 60% of the stock still remains shorted.
"We'll cover our position somewhere in the neighborhood of zero," one short said.
Click here to see actual article
Pre-Paid Legal's Colorful Workforce
By Melissa Davis
Staff Reporter
07/04/2002 10:14 AM EDT
Pre-Paid Legal Services (PPD:NYSE - news - commentary - research - analysis) says it just wrapped up its best recruiting quarter ever, signing on 45,962 new salespeople -- a 71% increase from last year. But new research by TheStreet.com suggests that the company is heavily reliant on a few rainmakers who use controversial hard-sell tactics that several state regulators are scrutinizing.
Pre-Paid, which declined to comment on the specifics of this article, relies on a system of grass-roots customer recruitment and intense recruitment of new recruiters to keep its revenue growing. The problem with that, says Len Clements, a prominent watchdog of the so-called multilevel marketing industry, was apparent at a Pre-Paid recruitment meeting he attended in December 2000.
Clements found himself in a room with Tommy Vu, the 1980s infomercial star widely sued by disgruntled students of his $15,000 real-estate sales "boot camp."
"Tom Vu takes out a five-dollar bill and wraps it around the microphone stand," recalled Clements, who has no financial stake in the company's stock. "Then he asks the audience, 'If I said you could take this $5 for $1 of your own, what would you say?'
"I immediately thought, 'You'd be operating a Ponzi scheme.' But I didn't want to wreck the meeting."
One former Pre-Paid star who said he was victimized by that scheme is Jeff Turnipseed.
Hard Sell
For Turnipseed, selling Pre-Paid policies was never a problem.
He could walk into a company, sign up a crowd and do it consistently enough to rank among Pre-Paid's top salesmen. He recruited almost no one, relying entirely on his own sales for handsome commission checks.
But even Turnipseed couldn't overcome Pre-Paid's dismal customer retention rate -- roughly half the people who get a policy don't renew after one year. He found himself repaying Pre-Paid for the commissions he'd already collected on policies that wound up lapsing early. And his checks began to shrink.
The more policies Turnipseed sold, the more customers canceled early, and the more money he had to return to the company.
"I have spent more than two years talking to scores and scores -- if not hundreds -- of Pre-Paid associates and studying the Pre-Paid scheme," said John Dexter, an Oklahoma City attorney who's filed a class-action lawsuit against Pre-Paid on behalf of Turnipseed and other top earners. "And I have found there is no difference between the honest and successful Pre-Paid associate and the immigrant laborer who goes into debt to the company store."
Pre-Paid declined to respond to direct allegations.
Getting Sleepy
There is a keen difference between Turnipseed and several other Pre-Paid stars: Turnipseed has no rap sheet with regulators.
Disregard Vu, once targeted with an investigation by the Florida attorney general's office for allegedly using "mind control" powers to scam consumers.
Related Stories
Pre-Paid Legal Travels Into Another Dimension
Pre-Paid Legal Rides the Buffett Wayback Machine
Pre-Paid Loses Luster in Revision
Take instead Marshall Sylver, a former Las Vegas Strip hypnotist with his own background in mind control. (He bills himself as the worldwide leader in subconscious reprogramming.)
Pre-Paid listed a Marshall Sylver of Nevada as its No. 2 recruiter in late 2000. An extensive identity search revealed only one man by that name in Nevada. He is the target of a Nevada attorney general probe for allegedly bilking consumers through a "Millionaire Mentorship Program" he operated out of his mansion.
Sylver charged participants $5,000 apiece, with the promise they would double their money through his investment strategies or be entitled to a refund. Not only were many participants denied refunds, the attorney general discovered, but some were even teaching Sylver's Millionaire classes to pay off their own training debts.
Sylver couldn't be located for comment.
Viva Las Vegas
Then there's the National Audit Defense Network (NADN), also based in Las Vegas and the No. 1 Pre-Paid recruiter when Sylver was No. 2.
Last year the Better Business Bureau of Southern Nevada fielded more consumer complaints against NADN than against any other company. Both the Nevada attorney general and the Federal Trade Commission sued NADN for promising customers tax refunds and then refusing to honor a money-back guarantee when the refunds failed to materialize. The FTC obtained a court order to shut the company down in February, although its Web site and phone lines continue to operate.
NADN didn't return phone calls seeking comments for this story.
Pre-Paid's current top performer, an organization called Advantage Worldwide, has earned regulatory scrutiny.
Advantage Worldwide operates at the same the address and phone number of another company, Successtracks, which is run by Florida residents Bonnie Burke and Lisa Smith. In 1998 the U.S. Postal Service filed fraud charges against the pair's home-based business and took action to examine all mail "connected to the alleged unlawful activity" of that operation. The Postal Service's interest came three years after the Minnesota attorney general accused both women of operating an illegal "credit repair" scheme that promised to rid consumers of poor credit histories in exchange for a hefty upfront fee.
"Defendants represent that the program is '100% legal' when, in fact, consumers who follow defendants' advice may violate several federal and state laws that prohibit false statements on certain loan and credit applications," the attorney general stated in a report.
Neither Burke nor Smith was available for comment.
Student Protest
Ranked just a few notches below Advantage Worldwide is a top Pre-Paid organization that recently came under fire at California State University.
The student newspaper there published a story on Dominion Marketing last March, just after the company -- which sells and recruits for Pre-Paid -- refused to pay students for distributing fliers. Dominion said it expected the students to generate sales for their weekly $200 paycheck, despite advertising that no selling -- only flier distribution -- was required.
Dominion Marketing did not return a phone message seeking comments.
Drano Shot
Other recruiters deserve some mention as well.
There's David C. Draney, the man behind an Arizona organization ranked among Pre-Paid's top recruiters early this year. An exhaustive identity search turned up only one David C. Draney in Arizona or anywhere else.
Five years ago, Draney was cold-calling potential investors to ask if they would swap an eye or a kidney for $1 million. If they declined, he deemed them millionaires -- despite their low- or middle-income status -- and qualified them for high-risk investments typically reserved for the wealthy.
Federal prosecutors indicted Draney and 12 others for raising millions of dollars through the sale of bogus securities. Although Draney's trial ended in a hung jury, two of his co-defendants were sentenced to prison.
Draney couldn't be located for comment.
Cream of the Crop
These are simply the most interesting alleged con artists uncovered through a random investigation of the top earners who compose that tiny fraction of Pre-Paid sales associates who actually succeed.
Also worth noting but already made public: Paul J. Meyer, owner of a sales organization responsible for roughly half of Pre-Paid's business, came to Pre-Paid in 1998 with three FTC reprimands and one of the stiffest penalties ever imposed for overstating income opportunities. Fran Tarkenton, retired professional football player and former Pre-Paid director, paid six figures to settle charges brought against him in 1999 by the SEC for alleged fraud relating to an Internet software company. Although he vacated his Pre-Paid board seat, Tarkenton continues to be the company's most visible spokesman, beckoning Americans to Pre-Paid from television screens across the country.
Clements -- who is both a supporter and a watchdog of multilevel marketing -- said Pre-Paid is a pyramid scheme that tarnishes an industry regarded, often unfairly, as illegitimate.
He said a pending class-action lawsuit, which accuses Pre-Paid of being an illegal pyramid scheme, stands a "slam-dunk" chance of winning. Although he doubts the lawsuit will kill the company, he believes Pre-Paid will attempt to both save itself and appease federal regulators by halting the payment of recruiting commissions and bonuses to its sales force.
With that incentive gone, he predicted, interest in Pre-Paid will rapidly fade. "As a network marketing opportunity, it will probably die a natural death of attrition in two to three years," likely reverting to its old role of direct sales firm.
Actual Story
thestreet.com
Forbes Magazine June 2002
Legal Trouble
Elizabeth MacDonald, 06.19.02
Pre-Paid Legal Services insures against the cost of lawsuits. Too bad it can't buy some of its own insurance. The irony is delicious. Pre-Paid Legal Services, an Ada, Okla. firm that insures individuals against legal expenses, has a peck of legal problems itself. A suit filed against it in March in a U.S. district court in Oklahoma says Pre-Paid lied to its agents about how quickly customers discontinue their policies, among other claims. And at least 21 suits filed by 114 customers in Alabama alone mostly accuse Pre-Paid of deceptive practices.
Then there's Pre-Paid's tie-in to the L-K Marketing Group of Waco, Tex., run by Paul J. Meyer. Pre-Paid hooked up with Meyer in 1998, when it bought The People's Network, a marketer of self-help programs where Meyer was a principal, for $19 million in Pre-Paid shares. L-K claimed two years ago to have recruited 53% of the Pre-Paid agents brought on board in North America in the first six months of 2000. But Meyer has been charged three times by the FTC with using deceptive business practices, the last in 1995. That June he agreed (along with other executives and another company he runs, SMI/USA) to settle the charges by paying a total of $320,000, one of the FTC's largest civil penalties at that time, for overstating to prospective agents the income potential and ease of selling self-improvement products.
Top recruiters listed as such in Pre-Paid's in-house magazine The Connection have legal problems of their own. One is the National Audit Defense Network, a Las Vegas tax adviser sued by both the Federal Trade Commission and the Nevada state attorney general in February for deceptive trade practices (the cases are pending). The network didn't return calls seeking comment. Neither Meyer's run-ins with the FTC nor the Nevada recruiter's legal troubles are disclosed in Pre-Paid's Securities & Exchange Commission filings. Pre-Paid's excuse for its silence, answered by Chief Operating Officer Randall Harp in a written response to a reporter's questions: "There is no SEC requirement that Pre-Paid disclose the past legal history of persons who are not officers and directors of Pre-Paid."
John Coffee, a law professor at Columbia University, disagrees: "If your operations are heavily dependent on an individual or business as a leading recruiter, you need to disclose that material fact in financial filings, especially if there have been repeated commercial fraud sanctions."
Besides the legal headaches, Pre-Paid has had accounting trouble. It restated its 2000 results, slashing earnings by half for the period. The SEC ordered the restatement, forcing Pre-Paid to expense sales agents' commissions immediately, rather than amortize them over future periods.
Harland Stonecipher, founder and chief executive of Pre-Paid, tried to put a good face on the situation. In a letter to shareholders, the dapper 63-year-old said his Big Board-listed company was rocketing ahead. Its North American customer base grew 17% last year, ending at 1.2 million. Even with the restatement, the company earned $27 million last year on $304 million in revenues. Pre-Paid's stock has doubled since March 2001 to $22 a share.
This is a curious business, selling legal insurance--it is more selling than insurance. The customer forks over on average $251 a year for the coverage. Only $83 goes to pay for supplying lawyers to customers. The rest goes to overhead and profits.
As for the selling part, Pre-Paid looks like a knockoff of Amway, the huge door-to-door marketer of household products that has tiers of agents, which collected commissions from the tiers below. As at Amway, so too at Pre-Paid: Many of the customers at the bottom of the food chain have the hope that they will rise up through the chain. A customer who becomes an agent can get commissions for selling policies. Move another step up the chain, recruiting people to become agents, and you earn bonuses as well as commissions on policies they sell. Pre-Paid has 286,000 agents trying to sell policies, and 87% of them have bought the insurance coverage.
But what's the hot sales item here--the legal coverage or the right to sell other people this insurance? Agents, lured with the promise of a 25% sales commission on policies they sell, pay a $65 initiation fee. They are urged to take an optional course in salesmanship, which cost $184 last year. Stonecipher gets a $10 cut of that fee, which amounted to $1.2 million last year. Fees charged to agents came to $36 million of Pre-Paid's revenue in 2001.
A key issue is what agents expect to earn in return for forking over these fees. A company filing shows only 29% of the customers keep their policies going for three years or more. But a suit alleges Pre-Paid told agents the three-year retention rate was more than 70%. Without giving specifics, Pre-Paid's Harp says the suit is meritless, as are the others, and that the company intends to fight the suits vigorously in court.
There could be a reason customers bolt. The suits allege Pre-Paid overstates its legal coverage by telling customers they have unlimited legal access and coverage on a range of matters. In an issue of Connection, David A. Savula, one of Pre-Paid's top recruiters, wrote: "Does our product cover everything? Yes. So if somebody asks does it cover this or does it cover that, we're going to say, ‘Yes.'" Stonecipher made similar assurances during an interview in April 2001 on Fox's The O'Reilly Factor, as well as in his folksy corporate memoir, The Pre-Paid Legal Story.
Not so fast. The plans sharply limit coverage for cases involving bankruptcy, alcohol, drugs, preexisting conditions, divorce, annulment, child custody, class actions, hit-and-run accidents, driving without a license and civil or criminal charges associated with a business and tax evasion. The policy covers 60 hours of trial time for the first year that customers join, but there is a big catch. Pretrial work--the bulk of what litigators do--is limited to just 2.5 hours per year in a basic policy.
Customers supposedly get a 25% discount on attorney fees for excluded items--but there's nothing to stop participating lawyers from hiking their rates. What is free under the policy? Will-writing and contract reviews, among other things.
A teacher-turned-life-insurance-salesman, Stonecipher started what would become Pre-Paid in 1972. He was inspired, his corporate memoir says, after he "came face to face with the high price of justice when a car accident he was involved in found its way into the courts. Even though the accident was not his fault, the staggering costs of legal protection nearly destroyed him financially." Not mentioned is the fact that Stonecipher was the one who first brought suit.
Click here to see actual article
Dow Jones Business News
Pre-Paid Legal Services Reported To SEC - NY Post
Wednesday September 11, 8:43 am ET
NEW YORK -(Dow Jones)- Pre-Paid Legal Services Inc. (NYSE:PPD - News) , which provides discount legal advice to New Yorkers, has been reported to the U.S. Securities and Exchange Commission for not disclosing that it paid fees to a magazine that subsequently recommended its stock, the New York Post reported Wednesday.
ADVERTISEMENT
According to the newspaper's Web site, Pre-Paid Legal Services got a recommendation from Robert Flaherty, editor and publisher of Equities magazine, in an interview Flaherty did with Forbes.com on Sept. 3.
The report said Pre-Paid Legal Services issued a press release Tuesday boasting about the recommendation but the release didn't disclose that PPD paid more than $30,000 to Flaherty's publication.
The Post also said it had reported Monday that New York State Attorney General Eliot Spitzer had complaints about PPD.
biz.yahoo.com
Pre-Paid Legal's Legal Troubles
July 18, 2001
Stockholders Accuse Company of Securities Fraud
In January and February of this year, a number of stockholder class actions lawsuits were filed against Pre-Paid Legal Services, a company based in Oklahoma which sells legal "insurance" through a multi-level marketing system. The company trades on the New York Stock Exchange (NYSE) as PPD.
At issue is Pre-Paid's accounting practice regarding commission advances to associates. According to the Wall Street Journal of January 17, 2001:
"[An] associate sells a policy that costs about $25 a month. Even though the customer can cancel the policy at any time, Pre-Paid pays three years' worth of annual commissions upfront, a total of about $225. As a multilevel marketing company, Pre-Paid spreads the money among the associate who sold the policy and those sales associates above him in the company's pecking order.
"That is a big recruiting tool for Pre-Paid, whose growth is tied chiefly to its ability to expand its sales force."
PPD then classifies the commission payments as "assets," which it expenses over three years. However, the average customer holds a policy for only 2 years, and most sales associates never sell enough for PPD to recoup the advances. According to the company, only 26% of associates actually sold any policies in the first nine months of 2000.
Here is a partial list of class action suits filed against PPD in the early part of this year:
January 22, Berger & Montague, PC, class period April 19, 1999 through January 16, 2001.
January 25, Berman DeValerio & Pease LLP, class period April 19, 1999 through January 16, 2001.
February 13, Barrack, Rodos & Bacine, class period April 19, 1999 through January 16, 2001.
February 15, Spector, Roseman & Kodroff, P.C., class period April 19, 1999 through January 16, 2001.
February 16, Milberg Weiss Bershad Hynes & Lerach LLP, class period April 19, 1999 through January 16, 2001.
February 18, Holzer & Holzer, class period February 7, 2000 and January 16, 2001.
The complaints all revolve around the issue of securities fraud, accusing PPD of inflating stock prices by the use of inappropriate accounting methods.
The Securities and Exchange Commission launched an investigation of PPD's accounting practices. They rejected an appeal from the company, because PPD's accounting practices do not conform to generally accepted accounting principles.
Sales Associates Initiate Class Action, Charge Company with Deception, Breached Contracts, and Other Violations
Then, in June, a group of Pre-Paid Legal "Associates" filed a class action suit against the company. The suit claims that PPD breached contracts, and violated both the Consumer Protection Act and the Oklahoma Uniform Credit Code. The suit also charges the company with inflating customer retention figures in order to attract sales associates. Individuals are enticed to join as sales associates when presented with figures that lead them to believe most policies will remain on the books long enough for the associates to generate future income. The complaint alleges that most policies are cancelled before this happens, leaving the associates having to repay advances -- with interest.
Oklahoma City Attorney John Dexter is handling the lawsuit. According to Dexter:
"It appears to me that Pre-Paid Legal has been deceiving hundreds of thousands of ordinary people who wanted - and earnestly tried - to sell their program, but were never able to do it as successfully as Pre-Paid represented they could."
The class includes any Pre-Paid Legal Services Associates who was active between September, 1997 and June 29, 2001. According to a spokesman for the class action, the company has represented a 76% renewal rate over three years. According to numbers that PPD released to the SEC, however, the "persistency" rate is only 28%.
Pre-Paid Legal Services apparently has no legal insurance to fall back on.
Click here to go to actual site
Class Action Lawsuit Against Pre-Paid Legal Services
March 20, 2002
Lieff, Cabraser, Heimann & Bernstein, LLP and Dunn, Swan & Cunningham, P.C. announced today that a class action was commenced on March 1, 2002 in the United States District Court for the Western District |
