International Law

Red Flags at Pre-Paid Legal

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Barry Minkow writing at Fraud Discovery Institute has released a report about Pre-Paid Legal claiming:

"Pre-Paid Legal' reported "above the surface" numbers in bold text, boasting about increased membership revenues, net income, and earnings per share.

Yet the company did not, with equal zeal, disclose the true state of the business as shown by the decline in key metrics of interest to Wall Street, such as significantly declining recruitment.

In fact, in the company's 1st quarter conference call, Pre-Paid Legal COO Randy Harp said: "And as goes recruiting, so goes membership sales. So we are very focused. I will tell you the theme of our international convention at Oklahoma City was very much recruit, recruit, recruit, and don't get it out of order."

Obviously recruitment is a key metric for the company and a simple analysis of the numbers shows an utter decline, something management didn't see fit to highlight in large bold letters."

Minkow has also set up a website entitled PrePaid Illegal.

Interestingly, there appears to be no short selling by Minkow this time around.

But, he is absolutely right to focus on the recruitment numbers.  There is a lot of tom foolery that is used to pad these numbers in all direct sales companies.

Perhaps Minkow's work will lead to new accounting standards for disclosing recruitment numbers for direct sales companies?

Full post as published by Misleading Advertising Law on August 18, 2008 (boomark / email).