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Imperial Holdings Sunk by Federal Probe

NEW YORK ( TheStreet) -- Imperial Holdings (IFT) lost well more than half of its market capitalization Wednesday as investors crowded the exits in the wake of a raid of the company's offices by federal authorities.

The Boca Raton, Fla.-based company, which provides loans and cash payments based on life insurance policies and structured settlements, acknowledged late Tuesday it was served with a search warrant by the U.S. District Court of the Southern District of Florida, saying it fully cooperated with the exercise of the warrant.

Imperial further disclosed that both the company and certain employees, including its chairman and CEO Antony Mitchell, are being investigated by the District of New Hampshire, and that the probe relates to its life finance business. Perhaps coincidentally, the "How it Works" section for the company's life finance business on its Web site is currently listed as Under Construction.

The stock was recently trading at $2.38, down 62%, on volume of 5.7 million, far beyond the issue's trailing three-month daily average churn of around 130,000. Earlier in the session, the shares sank as low as $1.55. At current levels, the company's market cap is a little more than $50 million. Based on the stock's 50-day moving average of $7.27, Imperial's market cap was roughly $150 million.

"Today's action comes as a complete surprise," said CEO Mitchell in the company's prepared statement. "We are not aware of any wrongdoing and will cooperate fully with all relevant authorities to assist them in their investigation."

Imperial went public in February, pricing 16.7 million shares at $10.75 each, below its original expected range of $14 to $16. On Aug. 11, the company reported a fiscal second-quarter profit of $12.6 million, or 59 cents a share, on revenue of $29.2 million, up from a loss of $2.1 million on revenue of $20.6 million in the same period a year earlier. Imperial attributed the higher revenue to "an increase in fair value of life settlements," a line item that came in at $17.7 million.

Two of the firms that underwrote the company's IPO backed away from the mess on Wednesday. JMP Securities suspended its rating and coverage of Imperial's stock, citing "a lack of information surrounding an FBI investigation inhibits our ability to adequately analyze the stock." Wunderlich Securities downgraded the shares to hold and suspended its $16 price target, also pointing to the uncertainty suddenly engulfing the company.
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