Pre-Paid Faces Day in Court

Both Hinds and Holmes are among five Mississippi counties listed as "judicial hellholes" by a business-friendly group seeking tort reform. The entire state of West Virginia -- where Pre-Paid recently settled a case instead of risking a trial -- also made the list.

Pre-Paid has settled at least one big case in Mississippi as well. The company paid $1.5 million to settle a $745 million class-action lawsuit -- previously never disclosed to shareholders -- just before the trial was set to start in early 2001. Since then, however, the company has seen other plaintiffs rush to get settlements, too, and has vowed to battle them in court instead.

The U.S. Chamber of Commerce, where Stonecipher fills a board seat, has lent some assistance. Indeed, Forbes reported last year that the national organization is largely bankrolling a crusade to oust plaintiff-friendly judges in states like Mississippi.

The chamber claimed a particularly sweet victory last year. It managed to unseat a popular Mississippi judge who, according to Forbes, built a career on "defending the have-nots against the haves."

For now, Pre-Paid's fate rests with a jury instead. And if the company loses, it will find itself coughing up cash even as it pursues a more favorable decision on appeal. The company must post a bond equal to 125% of any award and will be responsible for 10% of the bond amount itself. So a $90 million jury award -- while admittedly unlikely -- could leave Pre-Paid with just a few million dollars in the bank as it approaches a slew of similar trials.

"Investors in Pre-Paid should not only worry in the short term about the 10% to 15% of any awards made in Mississippi," one short-seller said. "They should also worry about the 10% to 15% of other awards that might follow on copycat lawsuits filed all around the country."

Heat Index

For the time being, the spotlight remains trained on Mississippi.

Facing down will be nine Mississippi residents and a multimillion-dollar corporation run by a well-paid executive who used to be poor. To date, Stonecipher has celebrated his rise to power in two separate books.

"Where else but in America could the son of poor sharecroppers have an idea that the whole establishment opposed and, without money or connections, watch that idea take root and grow into a prosperous company?" his more recent book marvels.

Stonecipher grew up in a "shotgun" shack located in a rural Oklahoma county that's nearly as poor as the one in which he now stands trial. But the charismatic executive -- who likes to portray himself as the founder of the legal services industry -- has plenty of money and connections now. In fact, he could nearly double the per capita income by moving to Holmes County. Instead, he has been pocketing seven-figure bonuses for years and using at least some of that cash to help finance the campaigns of the politicians who regulate his company.

Over time, Stonecipher's company has regularly been accused by its customers -- and even its own sales associates -- of engaging in deceptive practices that unfairly fatten corporate profits at their expense. So far, however, the company has escaped serious punishment.

But short-sellers, who've been researching the company for years, believe that Pre-Paid is finally going to pay.

"Maybe I shouldn't just assume they'll lose," one short-seller conceded. "But based on what I know about this company's practices -- and the former U.S. attorney who's trying the case -- I'd bet heavily that it goes that way."

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