Suite Dreams Keep Pre-Paid Critics Awake

SEC Insight noted that the floor -- featuring a three-bedroom primary residence and a one-bedroom guest suite -- has been zoned as residential property. But it said that Pre-Paid itself has failed to discuss the purpose of that arrangement.

"We found no disclosures in Pre-Paid's May 2003 proxy indicating that the company provides compensation for residential space to any executives or board members of PPD (but the new building is only being occupied now)," SEC Insight states. "We'll be especially curious to see what next year's proxy says."

Cohan, for one, is suspicious. He's seen the shares of other companies -- such as Enron and Tyco (TYC Quote) -- plunge after huge sums of money were thrown at pet projects. And he's now wary that Pre-Paid could be poised for a similar fall.

"Especially considering the drop-off in their basic business, you have to wonder whether this is really the best time to be spending lots of money on a plush corporate headquarters," he said. "If I were a shareholder, I would view this as a very bright red flag."

As a matter of policy, Pre-Paid refuses to comment for stories by TheStreet.com because it believes the coverage is biased. But Tulsa money manager Fredric E. Russell stepped in with some defense of the company. He pointed out that critics are merely speculating about who will occupy the top-floor executive suite and -- more important -- who will pick up the tab.

But SEC Insight has already tackled the first of those two questions.

"Plans give suggestion that the company's executive suite will be on the fifth floor," the firm wrote. "Notably, the largest office (Mr. Stonecipher's?) also appears to be close to an easy access point for going up to the sixth-floor residence."