Suite Dreams Keep Pre-Paid Critics Awake

It's not easy to hide a multimillion-dollar residence in the rural Oklahoma town that Pre-Paid Legal Services (PPD Quote) calls home.

But Pre-Paid's many critics are convinced that's just what Pre-Paid is trying to do. They say the entire top floor of Pre-Paid's new corporate headquarters, hailed as "Ada's first skyscraper," is actually a lavish palace for the company's overindulged CEO.

To bolster their claims, they point to a new report issued by SEC Insight. The corporate disclosure Web site cites public documents to support a conclusion that CEO Harland Stonecipher will soon occupy the penthouse suite in Pre-Paid's new $30 million home. The comments come on the heels of a similar report published last month in TheStreet.com.

"In a maneuver highly suggestive of corporate executives using public company coffers as a private piggy bank, we acquired plans that show Pre-Paid Legal's new corporate headquarters building includes a penthouse comprised of almost 5,000 square feet of residential space," wrote SEC Insight, an independent firm that's not affiliated with the Securities and Exchange Commission. "This may just be one mighty fine corporate perk. ... If so, it would be out of sync with the sensibilities of a post-Enron-Tyco world."

Pre-Paid has borrowed roughly $20 million -- sacrificing its debt-free status in the process -- to construct the new six-story building. Based on publicly available figures, the company is paying about four times the going rate for new construction in the Ada market. And it is footing the bill at a time when its core business, selling legal policies through so-called multilevel marketers, is struggling to grow.

"Perhaps they're getting into the new business of executive housing, since they've found that the business of selling worthless legal policies is not that lucrative any more," speculated Peter Cohan, a Massachusetts investment strategist with no position in Pre-Paid's stock. "If that's the case, they should disclose that."

But Pre-Paid has said nothing about the residential nature of its new top floor.