UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF OKLAHOMA
GORDON GRAD WELL, On Behalf of Himself : CIVIL ACTION
And All Others Similarly Situated,
C . N6
Plaintiff, 61 4 I I"' 0 1 -3 2 c L'
" PRE-PAID LEGAL SERVICES, INC.,
CLASS ACTION Doc,KFTED
BANDY HARP and HARLAND C.
Defendants. DEMAND FOR JURY W00::,
COMPLATNT FOR VIOLATION OF THE - t,vtAt t10,-
SECURITIES EXCHANGE ACT OF 1934 0100e
Summary And Overview
1, This is a securities class action on behalf of all purchasers of the publicly traded
securities of Pre-Paid Legal Services, Inc. ("Pre-Paid" or the "Company") from. April 19, 1999
through January 16, 2001 (the "Class Period"), against Pre-Paid and certain of its officers and
directors for violations of the Securities Exchange Act of 1934 (the "1934 Act").
2. Pre-Paid designs, underwrites and markets legal expense plans. The Company's
legal expense plans, called Memberships, provide for or reimburse a portion of the legal fees
associated with a variety of legal services.
3. During the Class Period, Pre-Paid touted its high earnings and fast growth without
disclosing that its false financials contributed to this impression and that much of its reported
earnings were due to its wrongful practice of amortizing over an inappropriately long period of
time the commissions earned by its salespeople. Instead of accelerating, as it should have, the
expenses associated with the commissions it has capitalized, Pre-Paid has treated them as an
asset, causing Pre-Paid's earnings to be artificially inflated. Commission advances should be
expensed on all contracts that have been canceled. The recoverability of the receivable is not
assured as it requires the earnings of future commissions which are not predictable or certain.
Therefore, commission advances should not be 'treated as an asset because there is no future
4. The Company markets Memberships through a multi-level marketing program
where salespeople are paid commissions on what they sell plus the sales of new agents they
recruit. The amount of cash advanced upon the sale of a new Membership represents an amount
equal to up to three years of commission earnings. Some of the undisclosed consequences of the
Company's commission policy are: the Company is exposed to the risk of uncollectible
commission advances; the Company's earnings are artificially inflated because the commissions
are treated as assets rather than as expenses; the Company capitalizes its commission expenses
over too long a period of time; Pre-Paid has not written-off any of the associates' receivables;
and the Company does not reclassify- and disclose the nature of the receivables.
5. Because of the defendants' misrepresentations and omissions, as well as its
violations of Generally Accepted Accounting Principles ("GAAP") including its failure to
disclose in its financial statements the receivables, reserves and prepaid commission advances,
plaintiff and other investors in Pre-Paid stock during the Class Period have been damaged by
purchasing their stock at inflated prices. As a result of defendants' false practices and
statements, Pre-Paid's stock price traded at inflated levels during the Class Period, increasing to
as high as S 48 3/4 in November, 2000: As of January 19, 2001, the Company's stock is trading
at less than half that price.
Jurisdiction And Venue
6. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted herein arise
under §§10(b) and 20(a) of the 1934 Act and Rule 10b-5.
7. Venue is proper in this District pursuant to §27 of the 1934 Act. Many of the false
and misleading statements were made in or issued from this District_
8. The Company's principal executive offices are in Ada, Oklahoma, where the clay-
td-day operations of the Company are directed and managed.
9. Plaintiff Gordon Gradwell purchased Pre-Paid publicly traded securities as
described in the attached certification and was damaged thereby.
10. Defendant Pre-Paid develops, underwrites and markets legal expense plans. Pre-
Paid's con-mion stock trades in an efficient market on the NYSE. From the beginning of the
Class Period until May 19, 1999, Pre-Paid's common stock traded in an efficient market on the
11. (a) Defendant Randy Harp ("Harp") is Chief Operating Officer and a director of
Pre-Paid _ Until May 16, 2000 Harp was Pre-Paid's Chief Financial Officer as well.
(h) Defendant Harland C. Stonecipher is Chief Executive Officer and Chairman of
the Board of Pre-Paid.
12. The individuals named as defendants in 11 are referred to herein as the "Individual
Defendants," Because of the Individual Defendants' positions with the Company, they had
access to the adverse undisclosed information about its business, operations, products,
operational trends, financial statements, markets and present and future business prospects via
access to internal corporate documents (including the Company's operating plans, budgets and
forecasts and reports of actual operations compared thereto), conversations and connections with
other corporate officers and employees, attendance at management and Board of Directors
meetings and committees thereof and via reports and other information provided to them in
13. It is appropriate to treat the Individual Defendants as a group for pleading purposes
and to presume that the false, misleading and incomplete information conveyed in the
Company's public filings, press releases and other publications as alleged herein are the
collective actions of the narrowly defined group of defendants identified above, Each of the
Individual Defendants, by virtue of their high-level positions with the Company, directly
participated in the management of the Company, was directly involved in the day-to-day .
operations of the Company at the highest levels and was privy tb confidential proprietary
information concerning the Company and its business, operations, products, growth, financial
statements and financial condition, as alleged herein. Said defendants were involved in drafting,
producing, reviewing and/or disseminating the false and misleading statements and information
alleged herein, were aware or recklessly disregarded, that the false and misleading statements
• were being issued regarding the Company, and approved or ratified these statements, in violation
of the federal securities laws.
14. As officers and controlling persons of a publicly-held company whose common
stock was, and is, registered with the SEC pursuant to the Exchange Act, was traded on the
AMEX and is currently traded on the NYSE, and governed by the provisions of the federal
securities laws, the Individual Defendants each had a duty to disseminate promptly, accurate and
truthful information with respect to the Company's financial condition and performance, growth,
operations, financial statements, business, products, markets, management, earnings and present
and future business prospects, and to correct any previously-issued statements that-had become
materially misleading or untrue, so that the market price .of the Company's publicly-traded
securities would be based upon truthful and accurate information. The Individual Defendants'
misrepresentations and omissions during the Class Period violated these specific requirements
15_ The Individual Defendants participated in the drafting, preparation, and/or approval
of the various public and shareholder and investor reports and other communications complained
of herein and were aware of, or recklessly disregarded, the misstatements contained therein and
omissions therefrom, and were aware of their materially false and misleading nature. Because of
their Board membership and/or executive and managerial positions with Pre-Paid, each of the
Individual Defendants had access to the adverse undisclosed information about Pre-Paid's
business prospects and financial condition and performance as particularized herein and knew (or
recklessly disregarded) that these adverse facts rendered the positive representations made by or
about Pre-Paid and its business issued or adopted by the Company materially false and
16. The Individual Defendants, because of their positions of control and authority as
officers and/or directors of the Company, were able to and did control the content of the various
SEC filings which were signed by them, press releases and other public statements pertaining to
the Company during the Class Period_ Each Individual Defendant was provided with copies of
the documents alleged herein to be misleading prior to or shortly after their issuance and/or had
the ability and/or opportunity to prevent their issuance or cause them to be corrected.
Accordingly, each of the Individual Defendants is responsible for the accuracy of the public
reports and releases detailed herein and is therefore primarily liable for the representations
17. Each of the defendants is liable as a participant in a fraudulent scheme and course of
business that operated as a fraud or deceit on purchasers of Pre-Paid common stock by
disseminating materially false and misleading statements and/or concealing material adverse
facts. This fraudulent scheme or course of business deceived the investing public regarding Pre-
Paid's business, finances, financial statements and the intrinsic value of Pre-Paid common stock
and caused plaintiff and other members of the Class to purchase Pre-Paid securities at artificially
18. As alleged herein, defendants acted with scienter in that defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and misleading; knew that such statements or documents would be issued or
disseminated to the investing public, and knowingly and substantially participated or acquiesced
in the issuance Or dissemination of such statements or documents as primary violations of the
federal securities laws.
19_ As set forth elsewhere herein in detail, defendants, by virtue of their receipt of
information reflecting the true facts regarding Pre-Paid, their control over, and/or receipt and/or
modification of Pre--Paid' s allegedly materially misleading misstatements and/or their
associations with the Company which made them privy to confidential proprietary information
concerning Pre-Paid, participated in the fraudulent scheme alleged herein. Each Individual
Defendant sought to demonstrate that he could lead the Company successfully and generate the
growth expected by the market. The defendants' intention was to create an impression of growth
and to hide a ticking time bomb of declining growth_ Defendants understood the economic
reality of the Company's situation and did everything in their power to try to prevent the house
of cards from falling down.
20. Specifically, the Company, through the Individual Defendants, other Company
employees and members of the Company's Audit Committee had knowledge of the Company's
true financial condition and improper accounting policies.
2L Defendant Harp as Chief Financial Officer and Chief Operating Officer had
responsibility for the formulation of the Company's accounting policies and financial reporting.
Moreover, defendant Harp's cash compensation was tied directly to the Company's achievement
of certain earnings per share goals. For fiscal 1999, Harp received a total of approximately
$160,000, $40,000 or 25% of which was a bonus for the Company meeting certain earnings per
share criteria. Thus, defendant Harp had a motive for inflating the Company's earnings and
therefore earnings per share.
22_ Similarly, defendant Stonecipher had knowledge of the Company's commission
sales practices as he was according to the Company's most recent proxy statement instrumental
in the conception and development of the sales and commission program. In addition, defendant
Stonecipher receives special cash compensation for each new associate who participates in the
Company's sales program. In fiscal 1999 Stonecipher received approximately $1.1 million in
cash compensation, of which $687,760 was bonus compensation for enticing new associates to
sign up for the Company's sales program. Thus, defendant Stonecipher had knowledge of the
Company's commission sales practice.
DEFENDANTS' FALSE AND MISLEADING
STATEMENTS ISSUED DURING THE CLASS PERIOD
23. On April 19, 1999, Pre-Paid reported record results for the first quarter of 1999
ended March 30, 1999. According to its press release:
Net income for the first quarter of 1999 rose 67 percent to $8,782,000
from $5,266,000 for the same period in 1988. Total revenues rose 18
percent to $44,583,000 from $37,877,000 for the 1998 period due to
decreased TPN product sales. The Company's membership revenues
increased 41 percent to $33,767,000 from $23,953,000 for the same
periods. Earnings per share, diluted, increased 68 percent to 37 cents
per share from 22 cents per share for the comparable quarter of 1998_
"We are obviously very pleased with our first quarter operating results,
but more than ever, firmly believe the best is yet to come. As we
celebrate our 27th year in business, we are in the best financial
condition in our history with cash and investment balances of more
than S54 million, no long term debt and significant positive cash flow
while growing our core revenues at better than 40 percent, Our
continued growth in new memberships written and new sales
associates recruited coupled with our new recruiting, presentation and
communication systems all contribute to our belief that the best is still
ahead of as," Harland Stonecipher, Chairman, said. "These results
reflect the increasing market acceptance of our product and the
Company's ability to effectively deliver the services that so many
24. In Its Form. 10-Q Bled with the SEC on dated May 13, 1999 for the first quarter of
1999, the Company repeated the figures from the April 19, 1999 press release and emphasized
that there had been an increase in new membership sales of 39% over the same period in 1998.
New membership sales were $118,814,000.
25. In its Form 10-Q filed with the SEC on August 12, 1999 for the second quarter of
1999, Pre-Paid reported net income of $18.6 million, up 59% from the same quarter in 1998.
The increase in net income was said to be the result of increased Membership premiums. New
membership sales were $241,699,000.
26. On October 20, 1999, the Company reported that its third quarter net income rose
49% as revenue rose 23%. Defendant Stonecipher was reported as saying, Our continued
revenue growth, financial condition, enhanced Internet presence and increases in recruiting all
contribute to our belief that the best is still ahead of us."
27. In its Form 10-Q filed with the SEC on November 15, 1999 for the third quarter,
Pre-Paid noted that its reported net income for the nine months ended September 30, 1999 had
risen 56% over the same period in 1998. New membership sales were $134,725,000.
28. In its Form 10-K dated March 21, 2000 for fiscal 1999, the Company reported net
income of $38.9 million with a 43% increase in Memberships.
29. In its Form 10-Q filed with the SEC on May 4, 2000 for the first quarter of 2000,
the Company reported net income of $11.392 million and an increase in Membership premiums
of 39%. New membership sales were $163,341,000.
. . ,
30. In its Form 10-Q filed, with the SEC on August 9, 2000 for the second quarter of
2000, the Company reported net income of $24 million for the six months ended June 30, 2000,
up 29% from the same period of 1999. New membership sales were S169,314,000.
31. In its Form 10-Q filed, with the SEC on November 8, 2000 for the third quarter of
2000, Pre-Paid reported net income of $38.41 million for the nine months ended September 30,
2000. New membership sales were $171,753,000.
32. In a press release on January 20, 2001, Pre-Paid said'it wrote 165,710 new
memberships during the fourth quarter, a 11% rise from a year ago. The Company said its total
active membership base rose to 1,064,805 from 827,979 at the end of 1999.
33. On January 17, 2000, an article in the "Heard on the Street" column of The Wall
Street Journal disclosed the misrepresentations and nondisclosures regarding the improper
accounting practices of Pre-Paid. As a result, the price of Pre-Paid stock dropped from $22
11/16 on January 16 to $20 7/8 on January 17.
34. Defendants have intentionally or with reckless disregard hidden the economic
reality from investors as follows:
(a) Commission advances are increasing faster than revenue.
(b) Despite the faster growth of commission advances, Pre-Paid has failed to
change the Company's allowance for estimated unrecoverable commission advances which has
remained unchanged at $4.5 million for more than a year.
(c) The Company has misrepresented its ability to collect "charge-backs" if a
customer cancels a policy before three years. Since only 26% of the salespeople made a sale
during the nine months ended September 30, 2000, it is impossible to dock a salesperson's
renewal commissions if they have not sold any policies.
(d) Pre-Paid's balance sheet combines salespeople receivables and commission
advances in an effort to prevent investors from determining which portion is being written down
and which portion is not.
(e) The fact that Pre-Paid has not written off any commission advances as
unrecoverable gives investors the false impression that the Company is able to recover
commission advances by charge-backs to salespeople.
(1) Pre-Paid has never disclosed that commissions that would have been paid to
salespeople who have left are grouped into a pool with unrecoverable commission advance.
Fraudulent Scheme And Course Of Business
35. Each defendant is liable for (i) making false statements, or (ii) failing to disclose
adverse facts known to him about Pre-Paid. Defendants fraudulent scheme and course of
business that operated as a fraud or deceit on purchasers of Pre-Paid stock was a success, as it (i)
deceived the investing public regarding Pre-Paid's prospects and business; (ii) artificially inflated
the prices of Pre-Paid's publicly traded securities; and (iii) caused plaintiff and other members of
the Class to purchase Pre-Paid publicly traded securities at inflated prices_
36. During the Class Period, defendants materially misled the investing public, thereby
inflating the price of Pre-Paid securities, by publicly issuing false and misleading statements and
omitting to disclose material facts necessary to make defendants' statements, as set forth herein,
not false and misleading. Said statements and omissions were materially false and misleading in
that they failed to disclose material adverse information and misrepresented the truth about the
Company, its business and operations, including, inter alia:
(a) That the Company's financial statements were not prepared in accordance with
generally accepted accounting principles and in accordance with the federal securities laws and
SEC regulations concerning fair reporting;
(b) That the Company had violated GAAP and its own accounting policies by
improperly reporting expenses and earnings, and
(c) That the Company's statements as to the Company's earnings, income and
value of its stock were lacking in reasonable basis at all relevant times for the reasons set forth in
paragraph 34 (a)-(f).
37. At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by plaintiff and other members of the Class. As described herein, during the
Class Period, defendants made Or caused to be made a series of materially false and misleading
statements about Pre-Paid' s business, prospects and operations. These material misstatements
and omissions had the cause and effect of creating in the market an unrealistically positive
assessment of Pre-Paid and its business, prospects and operations, thus causing thc Company's
securities to be overvalued and artificially inflated at all relevant times. Defendants' materially
false and misleading statements during the Class Period resulted in plaintiff and other members
of the Class purchasing the Company's securities at artificially inflated prices, thus causing the
damages complained of herein,
38. Pre-Paid's financial-results during the Class Period were materially false and
mislcadi ng and in violation of GAAP and SEC. regulations. GAAP are those principles
recognized by the accounting profession as the conventions, rules and procedures necessary to
define accepted accounting practice at a particular time. S.E.C. Regulation S-X (17 C.F.R_
§210.4-01(a)(1)) states that financial statements filed with the S.E.C. which are not prepared in
compliance with GAAP are presumed to be misleading and inaccurate, despite footnote or other
disclosure. Regulation S-X requires that interim financial statements must also comply with
GAAP, with the exception that interim financial statements need not include disclosure which
would be duplicative of disclosures accompanying annual financial statements. 17 C_F_R_
39. Defendant Harp in The Wall Street Journal of January 17, 2001 acknowledged
"commissions that would have been paid to these dropouts - totaling
millions of dollars over the years - are grouped into a pool along with
unrecoverable commission advances, something the company hasn't
disclosed in fmancial reports. Historically, Mr. Harp says, those
figures have offset each other, making it unnecessary to write off any
commission-advance assets. Mr. Harp says company executives "just
never have found it necessary" to disclose this pool's existence
Defendant Harp acknowledged that Pre-Paid has been offsetting certain liabilities for
commission payments against receivables from their salespeople. According to GAAP,
specifically APB 10, it is a general principle of accounting that the offsetting of assets and
liabilities in the balance sheet is improper except where a right of setoff exists.
40. Defendant Hasp has acknowledged that the Company is pooling together
commissions that have not been paid and unrecoverable commission advances. A right of setoff
only involves two parties, under FASB Interpretation 39. Pre-Paid is not matching commissions
due one salesperson with commissions that are receivables tb another and this is therefore a
violation of GAAP.
41. Under Regulation S-X Rule 5-02, current assets must be stated separately in a
balance sheet or in a note thereto if there are any amounts in excess of five percent of total assets.
Pre-Paid has violated this Regulation by including salespeople receivable along with the
42. Defendants have failed to disclose the life of the policies and therefore have no
justification for capitalizing a policy over three years. FASB 60 states that acquisition costs,
which include commissions, shall be capitalized and charged to expense in proportion to
premium revenue recognized. Without disclosing the life of the policies, an investor cannot
determine whether the amortization period is appropriate. In addition, once the policy is
terminated the associated commission advance should be expensed immediately because there is
no longer any future economic benefit.
Violation of Section 10(b) Of The Exchange Act And
Rule 10b-5 Promulgated Thereunder Against All Defendants
43. Plaintiff repeats and realleges each and every allegation contained above as if fully
set forth herein_
44. During the Class Period, Pre-Paid and the Individual Defendants, and each of them, -
carried out a plan, scheme and course of conduct which was intended to and, throughout the
Class Period, did: (i)deceive the investing public, including plaintiff and other Class members,
as alleged herein; (ii) artificially inflate and maintain the market price of Pre-Paid' s securities;
and (Hi) cause plaintiff and other members of the Class to purchase Pre-Paid' s securities at
artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct,
defendarAs and each. of them, took the actions set forth herein.
45. Defendants (a) employed devices, schemes and artifices to defraud; (b) made untrue
statements of material fact and/or omitted to state material facts necessary to make the statements
not misleading; and (c) engaged in acts, practices, and a course of business which operated as a
fraud and deceit upon the purchasers of the Company's securities in an effort to maintain
artificially high market prices for Pre-Paid' s securities in violation of Section 10(b) of the
Exchange Act and Rule 10b-5. All defendants are sued as primary participants in the wrongful
and illegal conduct charged herein and as controlling persons.
46. In addition to the duties of full disclosure imposed on defendants as a result of their
making of affirmative statements and reports, or participation in the making of affirmative
statements and. reports to the investing public, defendants had a duty to promptly disseminate
truthful information that would be material to investors in compliance with the integrated
disclosure provisions of the S.E.C_ as embodied in S.E.C. Regulation S--X (11 C.F.R. Sections
210.01 at seq.) and Regulation S-K (17 C.F.R. Sections 229.10 et seq.) and other SEC.
regulations, including accurate and truthful information with respect to the Company's
operations, financial condition and earnings so that the market price of the Company's securities -
would be based on truthful, complete and accurate information.
47_ Pre-Paid and the Individual Defendants, individually and in concert, directly and
indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,
engaged and participated in a continuous course of conduct to conceal adverse material
information about the business, operations and future prospects of Pre-Paid as specified herein.
48. These defendants employed devices, schemes and artifices to defraud, while in
possessions of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of Pre-Paid' s value and
perfounance and continued substantial growth, which including the making of, or the
participation in the making of, untrue statements of material facts and omitting to state material
facts necessary in order to make the statements made about Pre-Paid and its business operations
and future prospects in the light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of Pre-Paid's
securities during the Class Period.
49_ Each of the Individual Defendants' primary liability, and controlling person
liability, arises from the following facts: (i) the Individual Defendants were high-level executives
and directors at the Company during the class Period and members of the Company's
management team or had control thereof; (ii) each of these defendants, by virtue of his
responsibilities and activities as a senior officer and director of the Company was privy to and
participated in the creation, development and reporting of the Company's internal budgets, plans,
projections and/or reports; and (iii) each of these defendants was aware of the Company's
dissemination of information to the investing public which they knew or recklessly disregarded
was materially false and misleading_
50. The defendants had actual knowledge of the misrepresentations and omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were available to them. Such
defendants material misrepresentations and/or omissions were done knowingly or recklessly and
for the purpose and effect of concealing Pre-Paid's operation condition and futm-e business
prospects from the investing public and supporting the artificially inflated price of its securities.
As demonstrated by defendants' overstatements and misstatements of the Company's business,
operations and earnings throughout the Class Period, defendants, if they did not have actual
knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain
such knowledge by deliberately refraining from taking those steps necessary to discover whether
those statements were false or misleading.
Violation of Section 20(a) Of The Exchange Act
Against Individual Defendants
51_ Plaintiff repeats and realleges each and every allegation contained above as if fully
set forth herein.
52. The Individual Defendants acted as controlling persons of Prc-Paid within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions, and their ownership and contractual rights, participation in and/or awareness of the •
Company's operations and/or intimate knowledge of the false financial statements filed by the
Company with the S.E.C. and disseminated to the investing public, the Individual Defendants
had the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which plaintiff contends are false and misleading. The Individual Defendants were
provided with or had unlimited access to copies of the Company's reports, press releases, public
filings and other statements alleged by plaintiff to be misleading prior to and/or shortly after
these statements were issued and had the ability to prevent the issuance of the statements or
cause the statement to be corrected.
53. In particular, each of these defendants had direct and supervisory involvement in the
day-to-day operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
54. As set forth above, Pre-Paid and the Individual Defendants each violated Section
10(h) and rule 10h-5 by their acts and omissions as alleged in this Complaint. By virtue of their
positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of
the E'xchange Act_ As a direct and proximate result of defendants' wrongful conduct, plaintiff
and other members of the Class suffered damages in connection with their purchases of the
Company's securities during the Class Period.
Class Action Allegations
55. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules -
of Civil Procedure on behalf of all persons who purchased Pre-Paid. publicly traded securities
(the "Class") on the open market during the Class Period_ Excluded from the Class are
defendants and the members of their immediate families, -their heirs, successors and assigns.
56. The members of the Class are so numerous that joinder of all members is
iMpractic able. The disposition of their claims in a class action will provide substantial benefits to
the parties and the Court. Pre-Paid had. more than 22,600,000 million shares of stock outstanding,
owned by hundreds if not thousands of persons.
57. There is a well-defined community of interest in the questions of law and fact
involved in this case. Questions of law and fact comnaon to the members of the Class which
predominate over questions which may affect individual Class members include:
(a) Whether the 1934 Act was violated by defendants;
(b) Whether defendants omitted and/or misrepresented material facts;
(c) Whether defendants statements omitted material facts necessary to make the
statements made, in light of the circumstances under which they were made, not misleading;
(d) 'Whether defendants knew or recklessly disregarded that their statements were
false and misleading;
(e) Whether the prices of Pre-P aid's publicly traded securities were artificially
(f) The extent of damage sustained by Class members and the appropriate measure
58. Plaintiffs claims are typical of those of the Class because plaintiff and the Class -
sustained damages from defendants' wrongful conduct.
59. Plaintiff will adequately protect the interests of the Class and has retained counsel
who are experienced in class action securities litigation. Plaintiff has no interests which conflict
with those of the Class.
60. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. •
Statutory Safe Harbor
61. The statutory safe harbor provided for forward-looking statements under certain •
circumstances does not apply to any of the allegedly false forward-looking statements pleaded in
this Complaint. The safe harbor does not apply to Pre-Paid's allegedly false 'financial statements.
None of the written forward-looking statements made were identified as forward-looking
statements, nor was it stated that actual results "could differ materially from those projected."
Nor did meaningful cautionary statements identifying important factors that could cause actual
results to differ materially from those in the forward-looking statements accompany those
forward-looking statements. Each of the forward-looking statements alleged herein to be false
as authorized by an executive officer of Pre-Paid and was actually known by each of the
Individual Defendants to be false when made.
Prayer For Relief
WHEREFORE, plaintiff prays for judgment as follows:
A. Declaring this action to be a proper class action pursuant to Rule 23;
B_ Awarding plaintiff and the members of the Class damages, interest and costs; and
. - . . .
C. Awarding such equitable/injunctive or other relief as the Court may deem just and
Plaintiff demands a trial by jury.
DATED this 22nd day of January, 2001.
BREATH WIT & PATTON
JOHN J. BREA T (OBA # 1092)
I3ABETTE PATTON (OBA # 10923)
101 Park Avenue, Suite 460
Oklahoma City, Oklahoma 73102
Telephone: (405) 415-1779
BERGER & MONTAGUE., P.C.
SHERRIE R_ SAVETT
KAREN S. ORMAN
1622 Locust Street
Philadelphia, PA 19103
Telephone: (215) 875-3000
JAMES M. ORM_AN, ESQ .
1600 Market Street
Philadelphia, PA 19103
Telephone: (215) 5237899
ROEiERTA LIEBENBERG, ESQ.
FINE, KAPLAN & BLACK
1845 Walnut Street
Philadelphia, PA 19103
Telephone: (215) 567-6565
Attorneys for Plaintiff
CERTIFICATION PURSUANT TO THE FEDERAL SECURITIES LAWS
Gordon Gradwell, „ duly swears and g ays, as to the claims asserted under the
federal securities laws, that;
1. I have reviewed The complaint filed on beholf of myself and at other persons similarly
situated against Pre-paid Legal Services. and certain °fits officers andJor directors. I approve of
the contents, end I authorize a sielar complaz to be Elad on my behalf
1 1 did riot purchase the security that Is the seject of this actiot at the direction of nay
counsel or in order to pardeipate in thas private action,
3, I arn willing -to serve as a representative plaintiff on behalf of the elms, including
pro-virg ins tristinocisy at deposition and trial, ifrieceagary.
4. My tainsaction the securities of Prerpaid Legal Services during the asserted Class
Shares Date of Prize p er
7?urcNasect furchase 5Uare
SOO January 2A-, 2000 S25.619
I stall ewn those sharas_
S.. T have not sought to sem as a class representative in any other action filed under the
United States folesal securities laws in the past three () years preceding the date or which this
ceremation is signed_
IS. I have not and will not accept any payment for serving as a representative plaintiff on
behaY of the ;kiss beyond my pro rens share of any recovery except for any award for reasonable
costs end expenses (=hiding lost wages) directly reeding to the repreerritation of the class 25
ordered by the court.
I declare under penalty of-perjury under the laws of the United States that the-EDI-ego' 's
true and correct Executed -this 42 day of ut) 6- 2001, at
BY: AIL - I
ordor, tarad 111