Imperial Holdings’ shares plunged as much as 75 percent Wednesday, a day after federal investigators raided the offices of the company, which makes lump-sum payments to buy life insurance policies and structured legal settlements.
The shares fell as low as $1.55 in morning trading before rebounding, and at midday the stock was down 60 percent at $2.53. Shares were halted at 1:42 p.m. EDT on Tuesday and did not trade the rest of the day.
Analysts at FBR Capital Markets, which underwrote the company’s IPO in February, downgraded the stock on Wednesday to “market perform” from “outperform.” In a note, they cut their price target on the stock to $6.20, which they said was the cash value of the shares.
Imperial confirmed the FBI raid late Tuesday and said it was apparently related to the company’s life insurance business. So-called life settlement companies such as Imperial buy insurance policies from people for a fraction of their value and then collect in full when the person dies.
It is the second publicly traded company in that business to come under legal scrutiny this year. In January, a company called Life Partners said it was the subject of an SEC investigation, and in June it said it could face civil charges.
Tensions run high between the insurance industry and the life settlement market, mostly over legal questions about whether the sold policies were taken out fraudulently and whether insurers are responsible for paying.
Separately, CNBC reported there was unusual options activity in the stock hours before the raid. The network said trading volume spiked about three hours before shares were halted, with total volume nearly seven times higher than it was on Monday.
In particular, CNBC said there was heavy interest in contracts that would let the holder sell shares in October at $5, suggesting they were betting the stock would drop below that point by then. At the time of the volume spike, the stock was trading for $6.49.
The U.S. Securities and Exchange Commission declined to comment on the options activity.
(Reporting by Ben Berkowitz and Clare Baldwin; Editing by Maureen Bavdek and Gunna Dickson)
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