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Imperial Put Trades Soared to Record Ahead of U.S. Probe Report

Imperial Holdings Inc.’s bearish options trading surged to a record before the financial firm said some executives are under investigation, sending the shares down by more than half yesterday.

Volume for puts to sell shares totaled 1,948 on Sept. 27, or 85 times the daily average since the options were listed on exchanges in February and 35 times the number of calls to buy. Put volume that day was more than double the 882 contracts that changed hands since the options began trading in March, and were the first transactions for the derivatives since Sept. 12.

“This feels like a trade with prior knowledge of a news event, or extraordinarily good timing,” said Ophir Gottlieb, managing director of client services at San Francisco-based Livevol Inc., which sells options-market analytics.

Imperial, the provider of insurance-premium financing that raised $189.2 million in its U.S. initial public offering in February, was served with a federal search warrant on Sept. 27, the Boca Raton, Florida-based company said in a statement after the market closed that day.

Chief Executive Officer Antony Mitchell, 45, and Chief Operating Officer Jonathan Neuman are among employees “under investigation in the District of New Hampshire” in connection with the company’s life-finance business, the company said yesterday in a regulatory filing.

Imperial plunged 65 percent yesterday in New York, closing at $2.19. The stock had dropped 41 percent since its IPO through 1:42 p.m. on Sept. 27, when trading was halted, according to exchange data sent to Bloomberg.

The Palm Beach Post reported at 2:26 p.m. local time that agents of the Federal Bureau of Investigation had raided Imperial’s headquarters.

Blocks of 80

The most-active options on Sept. 27 were October $5 puts, which accounted for more than half of all volume. Those contracts, which had never traded before that day, changed hands in blocks as large as 80 starting at 11:25 a.m.

Those puts first traded at 10 cents and increased more than 27-fold to $2.75 yesterday. A block of 80 contracts conveys the right to sell 8,000 common shares.

Material information about an investigation and search warrant can be obtained ahead of a public disclosure without breaching insider-trading rules, according to John Coffee, a securities-law professor at Columbia University in New York.

“People around courthouses aren’t always quiet, there’s a lot of gossip in the hallways,” Coffee said yesterday in a phone interview. “If it’s mere gossip, and someone hears it, they’re basically free to trade.”

‘Complete Surprise’

The probe is “a complete surprise,” Mitchell said in the statement. “We are not aware of any wrongdoing and will cooperate fully with all relevant authorities to assist them in their investigation.”

Mitchell, Neuman and David Sasso, Imperial’s director of investor relations, didn’t respond to phone messages yesterday. John Kacavas, U.S. Attorney for the District of New Hampshire, declined to comment on the investigation.

“Any criminal or civil investigation may affect the ability of the company to continue as a going concern,” Scott Valentin, an analyst at FBR Capital Markets, which led the company’s IPO, wrote yesterday in a note. Valentin cut his rating on Imperial to “market perform” from “outperform” and now predicts the stock may trade at $6.20 a share within the next year, down from $15.

Imperial, which ended yesterday with a market value of $46.4 million, retained law firm Greenberg Traurig LLP, according to the statement.

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