Pre-Paid Legal Investigation

Courtesy: Lieff Cabraser Heimann & Bernstein, LLP

Lieff Cabraser is investigating claims by sales agents (known as “associates”) of Pre-Paid Legal Services, Inc., who are allegedly compelled to purchase shares in the company. We are also investigating complaints by consumers that Pre-Paid Legal Services has engaged in unfair and deceptive business practices, including attempting to collect on service plans after customers properly canceled their plans.

Pre-Paid Legal Services develops and markets legal service plans across North America. The plans provide for legal service benefits, including unlimited attorney consultation, will preparation, traffic violation defense, automobile-related criminal charges defense, letter writing, document preparation and review and a general trial defense benefit. Pre-Paid Legal Services then sells insurance policies to cover customers’ legal costs.

In May 2001, the Securities and Exchange Commission informed Pre-Paid Legal Services that its accounts failed to conform to Generally Accepted Accounting Principles (“GAAP”). Pre-Paid offers its insurance policies through a multi-level sales network. If an associate sells a policy that costs about $25 a month and is cancelable at any time, Pre-Paid pays three years’ worth of annual commissions up-front for a total of about $225. The money is then distributed not only to the associate, but also those above him in the company pecking order. The Securities and Exchange Commission maintains that since there is no guarantee the customers will keep the month-to-month policies over a three-year period, the advances should be fully accounted for in the quarter they are paid.

Pre-Paid Legal Services has also been criticized for its accounting of commission advances on lapsed policies. If a customer cancels a policy before the three year period elapses, the company stops writing down the advances, treating them as receivables, or money owed the company, which the company does try to collect, but has a difficult time doing so.

Lieff Cabraser is leading national law firm founded in 1972 whose ongoing mission is to redress corporate misconduct and unfair business practices, to achieve justice for consumers, investors, businesses, and employees, to promote safe products, and to protect our environment and the human rights of citizens worldwide.

Lieff Cabraser Heimann & Bernstein, LLP is a sixty-five attorney firm that has represented plaintiffs nationwide since 1972. They have offices in San Francisco, California, New York, New York, Boston, Massachusetts, Washington, D.C. and Nashville, Tennessee.