Pre-Paid Toll Mounts

Pre-Paid Legal Services (PPD Quote) is learning just how costly a courtroom defeat can be.

The legal-insurance provider has seen a recent punitive award against the company derail its plans to borrow $160 million, intended primarily for stock repurchases. Buying back stock has helped the company fend off the advances of short-sellers, who bet a stock will decline by borrowing the stock, selling it and then seeking to buy it back later at a lower price.

"There has always been this sort of Mexican standoff between Pre-Paid and the shorts," says Peter Cohan, a Massachusetts investment strategist with no position in the stock. "With the company buying back its shares, the shorts have come under pressure to cover their positions. ... But this funding termination could cause that whole cycle to fall apart." ...