subject: MLM Scams - Could Prepaid Legal be a Scam? [print this page] In this article we take a look at one of the most popular companies in the MLM network marketing industry, Prepaid Legal Services. Many people are currently asking if Prepaid Legal is a scam, just based on the latest Google search results, and this peaked our interest to find out why. We'll examine the company and what is behind so many questions about its legitimacy.
The company is based on multi level marketing, which many automatically consider to be pyramid schemes, like Bernie Madoff's famous financial scam. But the FTC ruled in 1979 that multi level marketing was a completely legal business model as long as payments to distributors correlate with product sales vs. recruiting bonuses. While some companies may tread this line closely, Prepaid Legal doesn't appear to be in this category at all, although one online report equates its structure to an endless chain scheme, that is soon apt to collapse. We view this as speculative, but will investigate further in a follow-on article.
The company began in 1972 as the Sportsman's Motor Club. They currently market and underwrite pre-paid legal services plans through a network of more than 50 independent law firms across the U.S. and Canada. Pre-Paid Legal began utilizing network marketing in 1983. The company's IPO was in 1984 on the NASDAQ, and in 1986 moved to the American Stock Exchange.
Some former distributors, making a different type of "scam" claim, assert that the company's recruiting video doesn't give a clear picture to new recruits of what they face in order to succeed. For example, one points out that their policies have a 52% cancellation rate in year one, 65% in year two, 72% in year three, etc. 100 memberships sold today will result in less than 10 (according to the company's quarterly reports) in seven years. Speculation is that initial purchasers may have a particular legal issue at the time of purchase, such as a traffic ticket or need a will prepared, but thereafter don't have continuing need for services.
Also, per the company's SEC filings, associate failure rates are very high. As stated in these reports, 97% don't actually sell policies (only 3% make 10 sales) of the 450,000. Similarly, 93% of the 455,000 associates never make ONE (1) sale. One reviewer also reports that there may be an ongoing effort to prop-up the stock with a company buy-back. If these reports are factual, perhaps this company may be in danger of not surviving long-term. Also, Prepaid Legal has reportedly been under SEC and FTC investigation, although the FTC's recently closed its investigation.
There are many enthusiastic, happy customers but also many questions about this company. This may explain why current Google search results indicate sharp interest in the term "prepaid legal scam" at the present time. We can only recommend that if considering joining any company to first do some due diligence using trusted sources and make their own conclusions. An individual must decide on his own whether or not it would be a wise business decision for him/her personally. But we recommend against making any decision solely based on company presentations. Regardless of the truth behind these facts and/or rumors, there are certainly strong opinions on either side of the question if Prepaid Legal could be an example of multi level marketing scams or not.
