Verdict Hammers Pre-Paid

Pre-Paid Legal Services (PPD Quote) tumbled 5% Wednesday after the company suffered a rare legal setback.

Ada, Okla.-based Pre-Paid and its founding CEO were ordered to pay $9.9 million in punitive damages for defrauding a customer in Mississippi.

Pre-Paid must fork over $4.4 million of that total with CEO Harland Stonecipher on the hook for the rest, says plaintiff attorney Doug Minor. The damages represent 10% of each party's estimated net worth, Minor says.

A separate jury earlier found Pre-Paid liable for $40,000 worth of compensatory damages, the company said. Pre-Paid said the award came on claims by a customer "who paid the company less than $800 during the life of a membership originally purchased in 2000." Pre-Paid plans to appeal.

Pre-Paid got slapped with the punitive damages after jurors reportedly viewed videos produced by the company. Stonecipher "claimed that Pre-Paid customers 'never have to reach for their wallets' to pay a lawyer in any legal proceeding," states a press release issued by Minor's firm. But "among the most damaging statements from the videos was Stonecipher's spirited declaration, 'Three cheers for greed,' made while he tore $100 bills in half as part of a speech to thousands of Pre-Paid sales associates."

The company now faces lawsuits filed by hundreds of other disgruntled customers in Mississippi, a state known for its generous courtroom awards. Pre-Paid stock, which has tripled in recent years, dropped $2.22 to $45.20.

By now, the legal services provider has spent years fighting courtroom battles of its own. The company stands accused of misrepresenting both the value of its product, which offers limited coverage for a monthly fee, and the opportunity to sell its policies through the multilevel marketing technique made famous by Amway. Pre-Paid critics claim that the company targets the working poor, including minorities, in particular.