Newspaper article THE JOURNAL RECORD
Ada-Based Pre-Paid Legal Services in an Accounting Dispute over SEC Regulations
Pre-Paid Legal Services told stockholders in a letter on Tuesday that it is in the middle of an accounting dispute because the Ada- based company is not easily categorized.
In the letter, Chairman Harland Stonecipher says the Securities and Exchange Commission says Pre-Paid is not an insurance company but that at least 15 states regulate the company like an insurance company.
We, like insurance companies, pay commissions in advance, Stonecipher said.
Stonecipher said Pre-Paid sells memberships. But, unlike other membership companies, Pre-Paid gets customer acquisition costs back.
We are caught in the middle of this accounting dispute because we are not easily categorized, he said.
In July, the SEC chief accountant decided Pre-Paid Legal Services' accounting policies for commission advance receivables do not conform to generally accepted accounting principles.
That opinion concurred with the prior staff opinions of the Division of Corporation Finance and Office of the Chief Accountant, and may impact a host of lawsuits filed against the company.
The SEC inquiry of Pre-Paid, the developer and marketer of legal expense plans, was initiated after numerous lawsuits were filed against the company and industry analysts criticized the company in a Wall Street Journal article.
That criticism centers on how the company classifies at least some of its sales commission payments as assets.
In January, a series of class-action lawsuits was filed alleging that Pre-Paid used misleading accounting information to artificially inflate the company's stock prices. …