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Case 9:11-cv-81347-KLR Document 1 Entered on FLSD Docket 12/14/2011 Page 1 of 21

UNITED STATES DISTRICT COURT



SOUTHERN DISTRICT OF FLORIDA



NORMAN PONDICK, Individually and On Behalf
of All Others Similarly Situated,


vs.

Plaintiff,

IMPERIAL HOLDINGS, INC., ANTONY
MITCHELL, RICHARD A. O’CONNELL,
JEROME A. PARSLEY, JONATHAN NEUMAN,
DAVID A. BUZEN, FBR CAPITAL MARKETS &
CO., JMP SECURITIES LLC and WUNDERLICH
SECURITIES, INC.,

Defendants.




CIVIL ACTION NO.



CLASS ACTION COMPLAINT



JURY TRIAL DEMANDED

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Plaintiff, Norman Pondick (“Plaintiff”), alleges

the following based upon

the

investigation of Plaintiff’s counsel, which included, among other things, a review of defendants’

public documents, conference calls and announcements, United States Securities and Exchange

Commission (“SEC”) filings, wire and press releases published by and regarding Imperial

Holdings, Inc. (“Imperial Holdings” or the “Company”) and securities analysts’ reports and

advisories about the Company. Plaintiff believes that substantial additional evidentiary support

will exist for the allegations set forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION AND OVERVIEW



This is a federal class action on behalf of purchasers of the common stock of

1.

Imperial Holdings, who purchased or otherwise acquired Imperial Holdings common stock

pursuant or traceable to the Company’s February 7, 2011 Initial Public Offering (the “IPO” or

the “Offering”), seeking to pursue remedies under the Securities Act of 1933 (the “Securities

Act”).



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2.

Imperial Holdings is a specialty finance company that focuses on providing

premium financing for individual life insurance policies issued by insurance companies, and

purchasing structured settlements backed by annuities issued by insurance companies or their

affiliates.

3.

On or about February 7, 2011, the Company conducted its IPO. The IPO was a

financial success for the Company and its underwriters, as they raised proceeds of over $189

million by selling over 17.6 million shares of the Company’s common stock to investors at a

price of $10.75 per share.

4.

On September 27, 2011, the Company shocked investors when it disclosed that

the Federal Bureau of Investigation (“FBI”) had executed a search warrant, issued by the U.S.

Attorney’s office in New Hampshire, at Imperial Holdings’ offices. The Company subsequently

disclosed that it “understands that it and certain of its employees, including its chairman and

chief executive officer, and its president and chief operating officer, are under investigation in

the District of New Hampshire with respect to its life finance business.” Trading in the

Company’s stock was halted as a result of this news. The following day, all three of the

financial firms that had acted as underwriters of the Company’s IPO less than eight months

earlier downgraded or suspended their coverage of Imperial Holdings.

5.

Shares of the Company’s stock resumed trading on September 28, 2011. By the

close of trading that day, the Company’s shares had declined $4.11 per share, or over 65 percent,

to close at $2.19 per share, on unusually heavy trading volume. This closing price on September

28, 2011 represented a cumulative loss of $8.56, or nearly 80 percent, of the value of the

Company’s stares from the time that they were sold to investors in the IPO less than eight

months earlier.



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6.

The Complaint alleges that the Registration Statement, Prospectus and Prospectus

Supplement (collectively, the “Offering Materials”) issued in connection with the Company’s

IPO contained inaccurate statements of material fact, and omitted to state material facts required

to be stated, because they failed to disclose that Imperial Holdings had engaged in wrongdoing

with respect to its life finance business, which would expose the Company and certain of its

executive officers to a federal investigation.

7.

As a result of defendants’ wrongful acts and omissions, and the precipitous

decline in the market value of the Company’s securities, Plaintiff and other Class Members

suffered damages.

JURISDICTION AND VENUE



The claims asserted herein arise under and pursuant to Sections 11, 12(a)(2), and

8.

15 of the Securities Act (15 U.S.C. §§ 77k and 77o).

9.

This Court has jurisdiction over the subject matter of this action pursuant to

Section 22 of the Securities Act (15 U.S.C. § 77v).

10.

Venue is proper in this District pursuant to Section 22 of the Securities Act.

Many of the acts and transactions alleged herein, including the preparation and dissemination of

materially false and misleading information, occurred in substantial part in this Judicial District.

Additionally, Imperial Holdings maintains its principal executive offices in this District.

11.

In connection with the acts, conduct and other wrongs alleged in this Complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to, the United States mails, interstate telephone communications and

the facilities of the national securities exchange.



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PARTIES

12.

Plaintiff, Norman Pondick, as set forth in the accompanying certification,

incorporated by reference herein, purchased Imperial Holdings stock pursuant or traceable to the

IPO and has been damaged thereby.

13. Defendant Imperial Holdings is a Florida corporation with its principal executive

offices located at 701 Park of Commerce Boulevard, Suite 301, Boca Raton, Florida.

14. Defendant Antony Mitchell (“Mitchell”) was, at all relevant times, the Company’s

Chief Executive Officer (“CEO”).

15.

Defendant Richard A. O’Connell (“O’Connell”) was, at all relevant times, the

Company’s Chief Financial Officer (“CFO”) and Chief Credit Officer.

16. Defendant Jerome A. Parsley (“Parsley”) was, at all relevant times, the

Company’s Director of Finance and Accounting.

17. Defendant Jonathan Neuman (“Neuman”) was, at all relevant times, the

Company’s President and Chief Operating Officer (“COO”).

18. Defendant David A. Buzen (“Buzen”) was, at all relevant times, a member of the

Company’s Board of Directors.

19. Defendants Mitchell, O’Connell, Parsley, Neuman and Buzen are collectively

referred to hereinafter as the “Individual Defendants.” The Individual Defendants, because of

their positions with the Company, possessed the power and authority to control the contents of

Imperial Holdings’ reports to the SEC, press releases and presentations to securities analysts,

money and portfolio managers and institutional investors, i.e., the market. Each defendant was

provided with copies of the Company’s reports and press releases alleged herein to be misleading

prior to, or shortly after, their issuance and had the ability and opportunity to prevent their

issuance or cause them to be corrected. Because of their positions and access to material non-



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public information available to them, each of these defendants knew that the adverse facts

specified herein had not been disclosed to, and were being concealed from, the public, and that

the positive representations which were being made were then materially false and misleading.

20. Defendant FBR Capital Markets & Co. (“FBR Capital”) was an underwriter of the

Company’s February 7, 2011 IPO. FBR Capital maintains its executive offices at 1001 19th

Street North, Arlington, Virginia.

21. Defendant JMP Securities LLC (“JMP Securities”) was an underwriter of the

Company’s February 7, 2011 IPO. JMP Securities maintains its executive offices at 600

Montgomery Street, Suite 1100, San Francisco, California.

22. Defendant Wunderlich Securities, Inc. (“Wunderlich”) was an underwriter of the

Company’s February 7, 2011 IPO. Wunderlich maintains its executive offices at 6000 Poplar

Avenue, Suite 150, Memphis, Tennessee.

23. Defendants FBR Capital, JMP Securities and Wunderlich are collectively referred

to hereinafter as the “Underwriter Defendants.” The Underwriter Defendants assisted in the

preparation and dissemination of the offering materials for Imperial Holdings’ IPO.

SUBSTANTIVE ALLEGATIONS



Background

24.

Imperial Holdings is a specialty finance company founded in December 2006 with



a focus on providing premium financing for individual life insurance policies issued by insurance

companies generally rated “A+” or better by Standard & Poor’s (“S&P”) or “A” or better by

A.M. Best Company, and purchasing structured settlements backed by annuities issued by

insurance companies or their affiliates generally rated “A1” or better by Moody’s Investors

Services or “A−” or better by S&P.



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25.

In the premium finance business, Imperial Holdings earns revenue from interest

charged on loans, loan origination fees, and fees from referring agents. In the structured

settlement business, the Company purchases structured settlements at a discounted rate and sells

such assets to (or finances such assets with) third parties.

26. On or about February 7, 2011, the Company conducted its IPO. In connection

with the IPO, the Company filed its Offering Materials with the SEC. The IPO was a financial

success for the Company and its underwriters, as they raised over $189 million by selling over

17.6 million shares of stock to investors at a price of $10.75 per share.

Materially False and Misleading

Statements Made in the Offering Materials



In describing the Company’s business, the Offering Materials contained a section

27.

entitled “Business Overview” which stated:

We are a specialty finance company with a focus on providing premium financing
for individual life insurance policies and purchasing structured settlements. We
manage these operations through two business segments: premium finance and
structured settlements. In our premium finance business we earn revenue from
interest charged on loans, loan origination fees and agency fees from referring
agents. In our structured settlement business, we purchase structured settlements
at a discounted rate and sell such assets to, or finance such assets with, third
parties.

*

*

*

We expect that the net proceeds from this offering will be used to finance and
grow our premium finance and structured settlement businesses. We intend to
originate new premium finance loans without relying on debt financing. We
intend to use a portion of the net proceeds from this offering, together with debt
financing, to continue to finance the acquisition and sale of structured settlements.

28.

The Offering Materials also provided an overview of the Company’s “Premium

Finance Business” as follows:

A premium finance transaction is a transaction in which a life insurance
policyholder obtains a loan, predominately through an irrevocable life insurance
trust established by the insured, to pay insurance premiums for a fixed period of



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time, allowing a policyholder to maintain coverage under the policy without
having to make premium payments during the term of the loan. A premium
finance transaction also benefits life insurance agents by preventing a life
insurance policy from lapsing, which could require the agent to repay a portion of
the commission earned in connection with the issuance of the policy. Since our
inception, we have originated premium finance transactions collateralized by life
insurance policies with an aggregate death benefit in excess of $4.0 billion.

As of September 30, 2010, the average principal balance of the loans we have
originated since inception is approximately $213,000. The life insurance policies
that serve as collateral for our premium finance loans are predominately universal
life policies that have an average death benefit of approximately $4 million and
insure persons over age 65. We currently make loans to borrowers in 9 states with
the insureds residing in any of the 50 states.

Our typical premium finance loan is approximately two years in duration and is
collateralized by the underlying life insurance policy. We generate revenue from
our premium finance business in the form of agency fees from referring agents,
interest income and origination fees as follows:
• Agency Fees — We charge the referring agent an agency fee for services
related to premium finance loans. Agency fees as a percentage of the principal
balance of the loans originated during the nine months ended September 30,
2010 and year ended December 31, 2009 were 49.9% and 50.6%,
respectively. These agency fees are charged when the loan is funded and
collected on average within 47 days thereafter.



Interest Income — Substantially all of the interest rates we charge on our
premium finance loans are floating rates that are calculated at the one-month
LIBOR rate plus an applicable margin. In addition, our premium finance loans
have a floor interest rate and are capped at 16.0% per annum. For loans with
floating rates, each month the interest rate is recalculated to equal one-month
LIBOR plus the applicable margin, and then, if necessary, adjusted so as to
remain at or above the stated floor rate and not to exceed the capped rate of
16.0% per annum. The weighted average per annum interest rate for premium
finance loans outstanding as of September 30, 2010 and December 31, 2009
was 11.3% and 10.9%, respectively.

• Origination Fees — On each premium finance loan we charge a loan
origination fee that is added to the loan and is due upon the date of maturity or
upon repayment of the loan. Origination fees as a percentage of the principal
balance of the loans originated during the nine ended September 30, 2010 and
the year ended December 31, 2009 were 41.7% and 44.7%, respectively.

The policyholder is not required to make any payment on the loan until maturity.
At the end of the loan term, the policyholder either repays the loan in full
(including all interest and fees) or, defaults under the loan. In the event of default,
subject to policy terms and conditions, the borrower typically relinquishes to us



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control of the policy serving as collateral for the loan, after which we may either
seek to sell the policy, hold it for investment, or, if the loan is insured, we are paid
a claim equal to the insured value of the policy, which may be equal to or less
than the amount we are owed under the loan. As of September 30, 2010, 94.6% of
our outstanding loans have collateral whose value is insured. With the net
proceeds from this offering, we expect to have the option to retain for investment
a number of the policies relinquished to us upon a default. When we choose to
retain the policy for investment, we are responsible for all future premium
payments needed to keep the policy in effect. We have developed proprietary
systems and processes that, among other things, determine the minimum monthly
premium outlay required to maintain each retained life insurance policy.

Our premium finance borrowers are currently referred to us through independent
insurance agents and brokers licensed under state law. Prior to January 2009, we
originated premium finance loans that were sold by life insurance agents that we
employed. Once a potential borrower has been referred to us, we assess the
borrower’s creditworthiness and the fair value of the life insurance policy to serve
as collateral. We further support our loan origination efforts with specialized sales
teams that guide agents and brokers through the lending process. Our transaction
processing and servicing processes and systems allow us to process a high volume
of applications while maintaining the ability to structure complex negotiated
transactions and apply our strict underwriting standards. Our existing technology
infrastructure allows us to service our current loan volume efficiently, and is
designed to permit us to service the increased loan volume that we expect to
generate with the net proceeds of this offering.

*

*

*

When we approve a premium finance loan, the borrower executes a loan
agreement and other related documents, which contain representations, warranties
and guaranties from the insured and representations and warranties from the
referring agent or broker in regard to the accuracy of the information provided to
us and the issuing life insurance company. The funds required to cover all of the
premiums due during the term of a premium finance loan are wired up front
directly to the borrower. We do not fund loans that are in excess of the premiums
previously paid and future premiums that are scheduled to come due on the policy
during the term of the loan. In order to determine the amount of premiums
previously paid by the borrower so as to be certain we are not advancing more
then [sic] future and past premiums, we require a statement from the issuing life
insurance company showing the amount of prior payments.

29. Additionally, the Offering Materials further detailed the Company’s “Premium

Finance Business” as follows:

A premium finance transaction is a transaction in which a life insurance
policyholder obtains a loan to pay insurance premiums for a fixed period of time,
which allows a policyholder to maintain coverage without additional out-of-



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pocket costs. Our typical premium finance loan is approximately two years in
duration and is collateralized by the underlying life insurance policy. The life
insurance policies that serve as collateral for our premium finance loans are
predominately universal life policies that have an average death benefit of
approximately $4 million and insure persons over age 65.

We expect that, in the ordinary course of business, a large portion of our
borrowers may default on their loans and relinquish beneficial ownership of their
life insurance policy to us. Our loans are secured by the underlying life insurance
policy and are usually non-recourse to the borrower. If the borrower defaults on
the obligation to repay the loan, we generally have no recourse against any assets
except for the life insurance policy that collateralizes the loan.

*

*

*

We believe that the net proceeds from this offering will allow us to increase the
profitability and number of new premium finance loans by eliminating the cost of
debt financing and lender protection insurance and the limitations on loan
originations that our lender protection insurance imposed.

30.

The Offering Materials also provided an overview of the Company’s “Structured

Settlement Business” and stated:

Structured settlements refer to a contract between a plaintiff and defendant
whereby the plaintiff agrees to settle a lawsuit (usually a personal injury, product
liability or medical malpractice claim) in exchange for periodic payments over
time. A defendant’s payment obligation with respect to a structured settlement is
usually assumed by a casualty insurance company. This payment obligation is
then satisfied by the casualty insurer through the purchase of an annuity from a
highly rated life insurance company, which provides a high credit quality stream
of payments to the plaintiff.

Recipients of structured settlements are permitted to sell their deferred payment
streams to a structured settlement purchaser pursuant to state statutes that require
certain disclosures, notice to the obligors and state court approval. Through such
sales, we purchase a certain number of fixed, scheduled future settlement
payments on a discounted basis in exchange for a single lump sum payment,
thereby serving the liquidity needs of structured settlement holders.

*

*

*

As of September 30, 2010, we had approximately 50 employees dedicated to the
purchase or underwriting of structured settlements. Our purchasing team is trained
to work with a prospective client to review the transaction documentation and to
assess a client’s needs. Our underwriting group is responsible for reviewing all
proposed purchases and performing a detailed analysis of the associated
documentation. We have also developed a cost-effective nationwide network of



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law firms to represent us in the required court approval process for structured
settlements. As of September 30, 2010, the average cycle time starting from
submission of the paper work to funding the transaction was 70 days. This cycle
includes the evaluation and structuring of the transaction, an economic review,
pricing and coordination of the court process. Our underwriting procedures and
process timeline for structured settlement transactions are described below.

We believe that we have various funding alternatives for the purchase of
structured settlements. On September 24, 2010, we entered into an arrangement to
provide us up to $50 million to finance the purchase of structured settlements. We
also have other parties to whom we have sold settlement assets in the past, and to
whom we believe we can sell assets in the future. We will continue to evaluate
alternative financing arrangements, which could include securing a warehouse
line of credit that would allow us to purchase structured settlements.

31. Additionally, the Offering Materials detailed the “strict loan underwriting

guidelines” and the “extensive underwriting” performed by Imperial Holdings to “help protect

against fraud and to seek profitable transactions” as follows:

To help protect against fraud and to seek profitable transactions, we perform
extensive underwriting before entering into a transaction. We use strict loan
underwriting guidelines that, among other things, require:


the use of third party medical underwriters to evaluate the medical condition
and life expectancy of each insured;




the use of actuarial tables published by the American Society of Actuaries;

the subject policy be issued by an insurance company with a high financial
strength rating from A.M. Best, Standard & Poor’s or other recognized rating
agencies;

• a review of each loan for compliance with our internal guidelines as well as

applicable laws and regulations; and



the use of a personal guaranty to further support our underwriting efforts to
protect against losses resulting from the issuing insurance company voiding a
policy due to fraud or misrepresentations in the application process to obtain
the life insurance policy.

We believe that our underwriting guidelines have been effective in mitigating
fraud-related risks.

32. With regard to the Company’s “Competitive Strengths,” the Offering Materials

stated:



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We believe our competitive strengths are:
• Complementary mix of business lines. Unlike many of our competitors who
are focused on either structured settlements or premium financings, we
operate in both lines of business. This diversification provides us with a
complementary mix of business lines as the revenues generated by our
structured settlement business are generally short-term cash receipts in
comparison to the revenue from our premium financing business which is
collected over time.

• Scalable and cost-effective infrastructure. We have created an efficient, cost-
effective, scalable infrastructure that complements our businesses. We have
developed proprietary systems and models that allow for cost-effective review
of both premium finance and structured settlement transactions that utilize our
underwriting standards and guidelines. Our systems allow us to efficiently
process transactions while maintaining our underwriting standards. As a result
of our investments in our infrastructure, we have developed a structured
settlement business model that we believe has significant scalability to permit
our structured settlement business to continue to grow efficiently.

• Barriers to entry. We believe that there are significant barriers to entry into
the premium financing and structured settlement businesses. With respect to
premium finance, obtaining the requisite state licenses and developing a
network of referring agents is time intensive and expensive. With respect to
structured settlements, the various state regulations require special knowledge
as well as a network of attorneys experienced in obtaining court approval of
these transactions. Our management and key personnel from our premium
finance and structured settlement businesses are experienced in these
specialized businesses and, in many cases, have more than half a decade of
experience working together at Imperial and at prior employers. Our
management team has significant experience operating in this highly regulated
industry.

• Strength and financial commitment of management team with proven track
record. Our senior management team is experienced in the premium finance
and structured settlement industries. In the mid-1990s, several members of our
management team worked together at Singer Asset Finance, where they were
early entrants in structured settlement asset classes. After Singer was acquired
in 1997 by Enhance Financial Services Group Inc., several members of our
senior management team joined Peach Holdings, Inc. At Peach Holdings, they
held senior positions, including Chief Operating Officer, Head of Life Finance
and Head of Structured Settlements. In addition, Antony Mitchell, our chief
executive officer, and Jonathan Neuman, our president and chief operating
officer, each have over $7 million of their own capital invested in our
company. This financial commitment aligns the interests of our principal
executive officers with those of our shareholders.



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33.

Finally, with respect to the Company’s “Business Strategy,” the Offering

Materials stated:

Guided by our experienced management team, with the net proceeds from this
offering, we intend to pursue the following strategies in order to increase our
revenues and generate net profits:
• Reduce or eliminate the use of debt financing in our premium finance
business. The capital generated by this offering will enable us to fund new
premium finance loans and provide us with the option to retain investments in
life insurance policies that we acquire upon relinquishment by our borrowers
without the need for additional debt financing. In contrast to our existing
leveraged business model that has made us reliant on third-party financing
that is often unavailable or expensive, we intend to use equity capital from this
offering to engage in premium finance transactions at profit margins
significantly greater than what we have historically experienced. In the future,
we expect to consider debt financing for our premium finance transactions and
structured settlement purchases only if such financing is available on
attractive terms.

• Eliminate the use of lender protection insurance. With the proceeds of this
offering, we will no longer require debt financing and lender protection
insurance for new premium finance business. As a result, we expect to
experience considerable cost savings, and in addition expect to be able to
originate more premium finance loans because we will not be subject to
coverage limitations imposed by our lender protection insurer that have
reduced the number of loans that we can originate.

34.

The statements contained in ¶¶ 27 – 33 were inaccurate statements of material

fact, and omitted to state material facts required to be stated, because they failed to disclose that

Imperial Holdings had engaged in wrongdoing with respect to its life finance business, which

would expose the Company and certain of its executive officers to a federal investigation.

The Truth Begins to Emerge

35. On September 27, 2011, the FBI executed a search warrant at Imperial Holdings’



office and trading in the Company’s stock was subsequently halted. As reported by The

Associated Press:

Imperial Holdings LLC was shut down and trading in its stock halted following
an FBI raid at its Boca Raton, Fla., office on Tuesday.



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The FBI searched and closed the office at around 1 p.m. EDT, the Palm Beach
Post reported. The newspaper said an empty U-Haul truck was backed up to the
entrance at the time of the raid, and workers there were sent home.

An FBI spokesman in Miami said agents were acting on a search warrant
issued by the U.S. Attorney’s office in New Hampshire. The New Hampshire
office would not comment on the investigation.

Trading was halted in the New York Stock Exchange-listed stock at about 1:45
p.m. An NYSE spokesman confirmed the stock was halted pending news, but
could not offer any details. [Emphasis added.]

36. Also on September 27, 2011, the Company issued a press release confirming that

its offices had been searched by the FBI, and disclosing that certain of its executive officers,

including its chairman and CEO, and its president and COO, were under federal investigation.

The press release stated, in relevant part:

Imperial Holdings, Inc. (NYSE: IFT) (“Imperial”) was served today with a search
warrant issued by a Magistrate Judge for the U.S. District Court in the Southern
District of Florida.

Imperial is a specialty finance company providing liquidity solutions with a focus
on individual life insurance policies and purchasing structured settlement
payments. The Company understands that it and certain of its employees,
including its chairman and chief executive officer, and its president and chief
operating officer, are under investigation in the District of New Hampshire with
respect to its life finance business.

During the exercise of the warrant the Company fully cooperated. There has been
no action taken against the Company’s structured settlement business and the
Company anticipates normal operations, across all of its business segments, will
resume tomorrow.

“Today’s action comes as a complete surprise. We are not aware of any
wrongdoing and will cooperate fully with all relevant authorities to assist them in
their investigation,” said Antony Mitchell, chairman and chief executive officer,
Imperial Holdings, Inc. [Emphasis added.]

37. On September 28, 2011, prior to the market opening for trading, all three of the

financial firms that had acted as underwriters of the Company’s IPO less than eight months

earlier downgraded or suspended their coverage of Imperial Holdings:



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a.

FBR Capital downgraded Imperial Holdings to “Market Perform” from

“Outperform” and reduced its price target for the shares from $15.00 per

share to $6.20 per share;

b.

Wunderlich downgraded Imperial Holdings to “Hold” from “Buy” and

suspended its price target for the shares; and

c.

JMP Securities suspended its coverage of Imperial Holdings.

38.

Shares of the Company’s stock resumed trading on September 28, 2011. By the

close of trading that day, the Company’s shares had declined $4.11 per share, or over 65 percent,

to close at $2.19 per share, on unusually heavy trading volume. This closing price on September

28, 2011 represented a cumulative loss of $8.56, or nearly 80 percent, of the value of the

Company’s stares from the time that they were sold to investors in the IPO less than eight

months earlier.

39. On October 4, 2011, The Wall Street Journal published an article on Imperial

Holdings entitled “Life-Policy Loans Under Scrutiny.” The article stated, in relevant part:

A recent federal raid on a little-known Florida lender has turned up the heat on an
obscure corner of the financial world, where life-insurance policies are held as
collateral for high-cost loans.

Agents from the Federal Bureau of Investigation and other authorities on Sept. 27
descended upon the offices of Imperial Holdings Inc., a Boca Raton-based firm
that makes loans almost exclusively to older people. The loans allow those people
to pay six-figure premiums on multimillion-dollar insurance policies, which serve
as collateral on the loans.

The purpose of the action wasn’t clear but it could represent another legal
battleground for investors seeking to buy life-insurance policies in order to collect
the benefits once the policyholders die. Imperial’s practices already are the
subject of a handful of lawsuits from the insurance industry.

*

*

*

Federal and state courts long have upheld consumers’ rights to sell their policies
to outside investors. What insurers say sets Imperial’s business strategy apart
from these longstanding policy sales is the role of agents and other commission-



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based middlemen in allegedly inducing older people to take out policies with the
intent to sell them.

Imperial allows its customers to walk away from their loans—or default—so long
as they turn over their policies to the company, according to Imperial’s regulatory
filings. For loans that matured during 2010, 99% weren’t repaid at maturity, up
from 85% the year before, a filing states. Once a policy is in default, Imperial can
either keep it until the borrower dies or sell it to another investor.

In at least a handful of civil lawsuits in different federal courts, insurers and at
least one borrower have accused Imperial of a pivotal role in what they contend is
unlawful “stranger-originated life insurance.”

Insurers maintain that such policies can violate state laws that prohibit wagering
on people’s early demise if the policyholders were financially induced to take out
the policies specifically for flipping to investors and they themselves didn’t pay
for the policies.

Imperial typically makes two-year loans of about $213,000 to people at least 65
years old. The debt covers the premiums on a $4 million life-insurance policy,
according to the prospectus Imperial filed early this year when it raised $174
million in an initial public stock offering.

Imperial collects revenue from interest income, origination fees charged to its
borrowers and fees charged to referring agents. The company charged an interest
rate of 14% in the first six months of 2011, a regulatory filing shows. The
policyholder isn’t required to make any payment on the loan until maturity.

40. On October 5, 2011, Imperial Holdings disclosed, via a Form 8-K filed with the

SEC, that the Company’s Board of Directors had “formed a special committee to conduct an

independent investigation in connection with the U.S. Attorney’s Office for the District of New

Hampshire’s investigation of the Company’s life finance business.”

41. On November 14, 2011, the Company issued a press release entitled “Imperial

Holdings, Inc. Announces Third Quarter 2011 Results.” Therein, the Company disclosed:

Imperial reported a total loss of $1.8 million for the third quarter of 2011,
compared to third quarter 2010 total income of $20.0 million. In the life finance
segment, total income decreased by $22.3 million during the third quarter to a
total loss of $5.5 million, compared to total income of $16.8 million for the same
period in 2010. The decrease was primarily driven by a non-cash, unrealized
change in fair value expense of $14.1 million in its investment in life
settlements during the third quarter of 2011 compared to a $3.5 million non-cash
unrealized change in fair value gain during the same period in 2010, resulting



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from a lower estimated fair value of these Level 3 assets due to a change in the
discount rate in the Company’s fair value model.

Government Investigation

*

*

*

On September 27, 2011, the Company learned of a government investigation of
the Company and certain of the Company’s employees, including its chairman
and chief executive officer and its president and chief operating officer, by the
U.S. Attorney’s Office for the District of New Hampshire (“government
investigation”). The Company has been informed that the focus of the
government investigation concerns its premium finance loan business and the
Company continues to cooperate with the government investigation. There can be
no assurances that the ultimate outcome of the investigation will not result in
administrative, civil or criminal actions against us or our employees.

Antony Mitchell, Chairman and Chief Executive Officer, commented, “As a
result of the government investigation late in the third quarter we have initiated
several internal measures to conserve cash while still being able to maintain
our investment in life settlement assets. We made adjustments to account for
their estimated fair value in the market today. We remain committed to
preserving our assets and we will curtail cash deployment in life settlements for
the remainder of the year.” Mr. Mitchell continued, “We are in the process of
reevaluating our premium finance loan business and have suspended the
origination of premium finance loans.” [Emphasis added.]

PLAINTIFF’S CLASS ACTION ALLEGATIONS

42.

Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure on behalf of a Class, consisting of all those who purchased or otherwise

acquired Imperial Holdings’ common stock pursuant or traceable to the Company’s February 7,

2011 IPO, and who were damaged thereby (the “Class”). Excluded from the Class are

defendants, the officers and directors of the Company, at all relevant times, members of their

immediate families and their legal representatives, heirs, successors or assigns and any entity in

which defendants have or had a controlling interest.

43.

The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits



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to the parties and the Court. The Company sold over 17 million shares of stock in connection

with its IPO, and these shares are owned by thousands of persons.

44.

There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

(a) Whether the Securities Act were violated by defendants;

(b) Whether defendants omitted and/or misrepresented material facts;

(c) Whether defendants’ statements omitted material facts necessary in order

to make the statements made, in light of the circumstances under which

they were made, not misleading;

(d) Whether defendants knew or recklessly disregarded that their statements

were false and misleading;

(e) Whether the prices of Imperial Holdings securities were artificially

inflated; and

(f)

The extent of damage sustained by Class members and the appropriate

measure of damages.

45.

Plaintiff’s claims are typical of those of the Class because plaintiff and the Class

sustained damages from defendants’ wrongful conduct.

46.

Plaintiff will adequately protect the interests of the Class and has retained counsel

who are experienced in class action securities litigation. Plaintiff has no interests which conflict

with those of the Class.

47.

A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.



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FIRST CLAIM



Violation of Section 11 of

The Securities Act Against All Defendants



Plaintiff repeats and realleges each and every allegation contained above as if

48.

fully set forth herein only to the extent, however, that such allegations do not allege fraud,

scienter or the intent of the defendants to defraud Plaintiff or members of the Class. This count

is predicated upon defendants’ strict liability for making false and materially misleading

statements in the Offering Materials.

49.

This claim is asserted by Plaintiff against all defendants by, and on behalf of,

persons who acquired shares of the Company’s securities pursuant to or traceable to the Offering

Materials issued in connection with the Company’s February 7, 2011 IPO.

50.

This claim is brought within one year after discovery of the untrue statements and

omissions in the Offering Materials and within three years of the effective date of the Offering

Materials.

51.

By virtue of the foregoing, Plaintiff and the other members of the Class are

entitled to damages from the defendants and each of them, jointly and severally.

SECOND CLAIM



Violation of Section 12(a)(2) of

The Securities Act Against The Company and The Underwriter Defendants

52.

Plaintiff repeats and realleges each and every allegation contained above as if



fully set forth herein only to the extent, however, that such allegations do not allege fraud,

scienter or the intent of the defendants to defraud Plaintiff or members of the Class. This count

is predicated upon defendants’ strict liability for making false and materially misleading

statements in the Offering Materials.



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53.

Defendants were sellers, offerors, and/or solicitors of purchasers of the shares

offered pursuant to the Offering Materials.

54.

This action is brought within three years from the time that the securities upon

which this Count is brought were sold to the public, and within one year from the time when

Plaintiff discovered or reasonably could have discovered the facts upon which this Count is

based.

55.

THIRD CLAIM



Violation of Section 15 of The Securities Act

Against the Individual Defendants



Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein only to the extent, however, that such allegations do not allege fraud,

scienter or the intent of the defendants to defraud Plaintiff or members of the Class. This count

is predicated upon defendants’ strict liability for making false and materially misleading

statements in the Offering Materials.

56.

The Individual Defendants, by virtue of their positions and specific acts were, at

the time of the wrongs alleged herein and as set forth herein, controlling persons of Imperial

Holdings within the meaning of Section 15 of the Securities Act. The Individual Defendants had

the power and influence and exercised the same to cause Imperial Holdings to engage in the acts

described herein.

57.

By virtue of the conduct alleged herein, the Individual Defendants are liable for

the aforesaid wrongful conduct and are liable to Plaintiff and the Class for damages suffered.

WHEREFORE, Plaintiff prays for relief and judgment, as follows:

(a)

Determining that this action is a proper class action under Rule 23 of the

Federal Rules of Civil Procedure;



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Case 9:11-cv-81347-KLR Document 1 Entered on FLSD Docket 12/14/2011 Page 20 of 21

(b)

Awarding compensatory damages and equitable relief in favor of Plaintiff

and the other Class members against all defendants, jointly and severally,

for all damages sustained as a result of defendants’ wrongdoing, in an

amount to be proven at trial, including interest thereon;

(c)

Awarding Plaintiff and the Class their reasonable costs and expenses

incurred in this action, including counsel fees and expert fees; and

(d)

Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED


Plaintiff hereby demands a trial by jury.


Dated: December 14, 2011


























































SAXENA WHITE P.A.

/s/ Joseph E. White, III
Christopher S. Jones
Maya Saxena
Joseph E. White III
Lester R. Hooker
2424 N. Federal Highway, Suite 257
Boca Raton, FL 33431
Tel: 561 394-3399
Fax: 561 394-3382




KESSLER TOPAZ
MELTZER & CHECK, LLP
D. Seamus Kaskela
[email protected]
David M. Promisloff
[email protected]
Adrienne O. Bell
[email protected]
280 King of Prussia Road
Radnor, PA 19087
(610) 667-7706
(610) 667-7056 (fax)



Attorneys for Plaintiff



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Case 9:11-cv-81347-KLR Document 1 Entered on FLSD Docket 12/14/2011 Page 21 of 21

CERTIFICATE OF SERVICE





I HEREBY CERTIFY that on December 14, 2011, I filed the foregoing with the Court’s

CM/ECF System, which will send a notice of filing to all registered users.



















/s/ Joseph E. White, III
Joseph E. White, III








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