Pre-Paid Faces New Round of 'Jackpot Justice'

"Pre-Paid sells a product that's supposed to help you when you're faced with legal issues," said one fund manager who has a large short position in Pre-Paid's stock. "Now, the company has to defend itself in front of a Mississippi jury that's seen its peers suffer after purchasing this often-worthless product."

Two years ago, Mississippi did establish a cap on punitive damage awards after being labeled a haven for "jackpot justice." Plaintiffs responded by rushing into popular courts -- including those in Holmes and Hinds counties -- to file a slew of extra suits before the law took effect in 2003. Pre-Paid's cases, filed well before the cutoff, are exempt from the new limit.

One short-seller, who has been following the company for years, is glad to see Pre-Paid customers getting their day in court.

"Pre-Paid Legal fought hard to keep these Mississippi cases out of the light of day," he said. "We'll find out why when these cases get aired in the courts in Mississippi. With their history of crooked high-profile associates peddling these products, no one should expect this to be anything but ugly for Pre-Paid."

Pre-Paid's stock, which climbed 40% last year during an aggressive buyback program, tacked on 30 cents to hit $24.78 on Thursday. More than 75% of the float is currently sold short by investors betting against the company.