|Industry||Multi-level marketing, Legal services|
|Revenue||est. $400 million (2014)|
Number of employees
LegalShield (previously known as Pre-Paid Legal Services or simply Pre-Paid Legal) is an American corporation that sells legal service products through multi-level marketing in the United States and Canada.
Harland Stonecipher founded the company in Ada, Oklahoma on August 8, 1972 as the Sportsman's Motor Club. In 1976 it was incorporated as Pre-Paid Legal Services, Inc., and made its initial public offering in 1984.
In 2011, Pre-Paid Legal went from being traded on the New York Stock Exchange back to being a private company when it was acquired by MidOcean Partners for $650 million and subsequently changed its name to LegalShield.
LegalShield develops and markets pre-paid legal service plans through a network of more than 6,900 independent provider attorneys across the U.S. and Canada. The company also markets an identity theft monitoring and restoration service through its partnership with Kroll Inc. The company's membership plans are sold as employee benefits and directly through its multi-level marketing division.
Sportsman's Motor Club
LegalShield started as Sportsman's Motor Club in 1972. Harland Stonecipher (1938–2014) was the company's founding president and chief executive officer (CEO). The life insurance salesman from Ada, Oklahoma, created the "motor service club" after being in a car accident in 1969. The other party in the crash was cited for fault but still filed suit against Stonecipher for the accident. Although he had health, life, and vehicle insurance coverage, he was required to hire a lawyer to defend himself in court and struggled to pay the legal expenses. After researching the industry of European legal expense plans, he established the Sportsman's Motor Club to reimburse members for legal fees relating to vehicle accidents.
Pre-Paid Legal Services
The club changed its name and incorporated as Pre-Paid Legal Services, Inc. in 1976, becoming the first company in the United States to provide pre-paid legal plans for individuals. Initially, members could choose their own lawyer and seek reimbursement from Pre-Paid, but by the 1980s, the company directed members needing legal help to pre-selected firms.
Pre-Paid Legal began using "network marketing" (multi-level marketing or MLM) in 1983. The next year, the company went public. Pre-Paid was first listed on the NASDAQ, then moved to the American Stock Exchange in 1986, followed by the New York Stock Exchange in 1999, where it was listed as "PPD". In 1998 Pre-Paid acquired The People's Network, a marketing company based in Dallas.
In November 2006, Pre-Paid announced plans to spend $27.4 million to repurchase shares owned by executives.
In 2001, a Wyoming attorney general press release announced, "When we discovered that Pre-Paid was using prohibited income representations to promote their multilevel marketing program, we warned them that the representations were prohibited by Wyoming law." Pre-Paid paid $4,000 in lieu of civil penalties, reimbursed the state for $1,000 in costs, and refunded $2,000 to participants who claimed the company had misled them. In the same year, the U.S. Securities and Exchange Commission (SEC) required Pre-Paid to stop counting the commissions paid out to sales associates as assets instead of expenses, which reduced reported earnings by over half. Pre-Paid did not file its financial statements for 2000 until February 2002. The statements showed huge decreases in earnings (from $43.6 million to $20.5 million) and stockholder equity (from $147 million to $42 million). Later that year, however, the Denver Business Journal reported that Pre-Paid earned a $27.1 million profit on $303.7 million in revenue, a large increase from its $1.9 million profit on revenues of $129.6 million in 1997, and its members had access to a network of 46 firms with 1,270 lawyers.
More lawsuits followed. In 2004, approximately 250 plaintiffs filed about 30 lawsuits in Alabama against Pre-Paid, all of which were dismissed or settled by 2006. Pre-Paid faced two lawsuits in Mississippi in October 2004 and February 2005. A jury ruled in favor of the company in the first suit. In the second, a jury found Pre-Paid and Stonecipher guilty of deceptive advertising and fraud and required them, in November 2005, to pay $9.9 million in punitive damages. TheStreet.com reported that Pre-Paid faced additional lawsuits filed by 400 Mississippi plaintiffs. These were ultimately settled. TheStreet.com also noted that the company had had some success in court, including the overturning of a fraud verdict and the defeat of a class action lawsuit alleging the company was a pyramid scheme. The company and the Oklahoma Chamber of Commerce, which had Stonecipher on its board of directors, called the lawsuits "frivolous" and "abusive".
Pre-Paid's independent auditor was unable to approve the company's 2004 financial statements because of "material weaknesses" related to the processing of commissions. New rules proposed by the Federal Trade Commission (FTC) required Pre-Paid to disclose to potential associates that less than 25 percent of its sales representatives sold multiple insurance plans in 2005, which the company confirmed in an SEC filing.
In 2007 the FTC began investigating Pre-Paid's marketing of its identity theft service and Affirmative Defense Response System (ADRS), which the company developed to increase group sales. Pre-Paid changed its marketing materials in 2009 after regulators found the company’s claims about ADRS misleading. According to an SEC filing, the FTC and Pre-Paid "[reached] a mutually agreeable solution", and in 2010 the agency ended its three-year investigation without any action. Pre-Paid remained the focus of an informal SEC inquiry; the agency requested documentation about the company's 2006 stock repurchasing, consumer complaints related to provider law firms, payment card compliance, and the resignations of Stonecipher and director Tom Smith.
In January 2011, Pre-Paid Legal agreed to merge with entities formed by MidOcean Partners, a New York private equity firm that describes itself as "focused on the middle market". The deal closed on June 30, 2011, and the company once again became privately held. In July 2011, Rip Mason began serving as LegalShield’s CEO. On September 10, 2011, the company announced that it would change its name to LegalShield as part of an overall re-branding initiative.
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