Pre-Paid Struggling to Keep Customers

Pre-Paid also faces a class-action lawsuit that accuses the company of being an illegal pyramid scheme. In the meantime, short-sellers say the company continues to mislead its new recruits.

"Does anybody think for a second that these newly recruited, fee-paying associates are being told they are paying $100 to $149 for the opportunity to participate in a business whose product sales are down for the third consecutive quarter?" one asked. "I doubt that disclosure is part of the sales pitch."

Critics also question Pre-Paid's accountability to shareholders. They view the company's lavish new headquarters as a waste of shareholder money. But they are, if anything, more critical of the company's aggressive stock repurchases. In less than five years, Pre-Paid has spent $173 million -- some of it borrowed -- to reduce its share count by 30%. Critics challenge the soundness of that strategy.

"That's $10 of cash they've spent to improve the share price by a mere $4," one short-seller said. "So they've basically lost $6 a share for investors."

The company borrowed $14.2 million for fourth-quarter buybacks alone. It has $11 million left -- enough for around 425,000 shares -- on its treasury stock credit line.

In the meantime, critics continue to sell the stock short. At last official count, 8.2 million shares -- or 68% of the float -- were sold short. The stock drifted lower after Monday evening's update, slipping 42 cents to $25.03 in late-morning trading.