Pre-Paid's Pickle Gets Juicier

Ultimately, the former insider said, customers must cough up around $2,500 for a retainer to secure services they thought they had already paid for.

"And I assure you that most of the people who fall for this plan are low-income and cannot afford such retainers," the person said.

Recruiting Machine

In truth, Pre-Paid offers a legal policy that covers less -- but generally costs more -- than many plans in the industry. Moreover, the company has made few improvements to the plan despite the lift it might give customer retention. Instead, Pre-Paid relies heavily on its own sales force to buy and hold the policies and convince friends and family to do the same.

But Pre-Paid sales associates generally fail to profit from the difficult multilevel marketing business. So they tend to leave the company, canceling their own policies and taking their small base of customers with them.

As a result, Pre-Paid must constantly recruit new sales associates to replace the masses who depart or its customer base will shrivel. But the company, accused by critics of scamming both its sales associates and its regular customers, is weathering a sharp drop-off in recruiting as it heads toward a trial that could essentially decide whether it is an outright pyramid scheme.

Some Pre-Paid associates point to their own Web sites as evidence that the company is far more interested in recruiting people -- a hallmark of pyramid schemes -- than it is in selling a product. Until recently, visitors to the Web sites would find information about buying, as well as selling, Pre-Paid policies. But following a sudden update, the Web sites now promote only the Pre-Paid "opportunity" that invites people to sell Pre-Paid policies and recruit others to do so as well.

One successful associate, who shunned recruiting to focus on group sales, has grown suspicious of the company's true aim.