Imperial Funding Seeks to Raise $287 Million in a Repeat of the Dot.com Bust

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Imperial Public Offering Seeks to Cash Out at the Peak; Prospectus Ignores that Rates Have Drastically Fallen Since 2008

Houston, TX, October 14, 2010 (PressReleasePoint) -- In what could turn out to be the stock bust of 2010, Imperial Holdings, LLC seeks to raise millions in an initial public offering which anticipates revenues based upon a market from a by-gone era. Imperial's main business is purchasing structured settlement payments, typically from persons who have recovered in personal injury suits.

In a recent government filing, Imperial Holdings admitted that interest rates charged to its customers average 17% per year. These rates put Imperial Funding – formerly marketed under the name Washington Square Structured Settlements – at the high end of the structured settlement factoring industry – giving its customers the least value for their settlements. Imperial's August 12, 2010 filing was made with the federal government in anticipation of its hoped for $287 million offering. The Imperial filing is now with the SEC for review. FBR, the investment banking firm assisting Imperial, appears to have fallen short in its due diligence.

It is well known among structured settlement factoring companies, as those businesses acquiring structured settlements are known, that discount rates charged to customers this year have fallen drastically, making Imperial's business model a dinosaur of sorts. Upon questioning, Deborah Benaim, a twenty year industry veteran and current Senior Vice President for Imperial, asserted that Imperial's interest rates historically are higher than reported, "averaging 18 - 20% per year". This places Imperial among the most costly of factoring companies in the industry, offering its customers the least value.

With such high interest rates, how does Imperial acquire new customers? According to Imperial's Benaim, though extensive television and cable advertising. It is well known in the factoring industry that customers secured through TV advertising are likely to pay the highest rates.

In an effort to maintain its high discount rates, Imperial has been spending an average of $14,000.00 in marketing costs per transaction, apparently targeting the otherwise ill-informed customer. Imperial's IPO is based on unrealistic optimism, hoping that the extraordinary rates that it briefly charged during the worst of the financial crisis will continue to benefit the company going forward. Because Imperial was able to charge extraordinarily high discount rates in 2008/2009, Imperial implies that these rates will continue. No doubt this is Imperial's reason to rush to the stock market, having just been formed in late 2006.

According to this industry insider, these rates are from a bygone era and are no longer maintainable. During the financial crisis, when money was difficult to come by, factoring companies were able to charge very high rates. Even large commercial banks saw their preferred stock trading at yields of 20%. That era has ended.

These high discount rates have not continued and are not continuing. As competitors, sellers and courts become more aware of the financial abuse at the hands of certain factoring companies, the rates have come down dramatically. For example, Wentworth – which itself emerged from bankruptcy in 2009 – can be seen in hundreds of transactions charging discount rates half of what Imperial charges on the average. This means that a customer can get sometimes twice – often more – as much from Imperial's competitors. Among the effective competitors of Imperial is RSL Funding, LLC, a Houston-based factoring company specializing in structured settlements, with operations throughout the U.S.

This author is affiliated with RSL.

Consider this: Can a bank offering mortgages at 20% interest per year survive in today's market? Imperial would have you think so. In an effort to stem the onslaught of lower priced competitors, Imperial has countered the fall in interest rates with litigation trying to prevent competitors from offering better deals to its customers. Imperial has taken the position that it has a right to charge a customer whatever it wants, and no competitor can offer a better deal to its customers.

What's in store for the investors in Imperial? The same investor who bought oil at $144 a barrel or natural gas at $12 per MCF may find a similar result to their investment in Imperial Holdings. Imperial will be forced to drastically reduce its rates to remain competitive. Smart customers shop rates. And judges are on notice to scrutinize Imperial transactions. Already, many judges question customers to ensure that they are getting a fair deal by requiring evidence of competitive shopping. Imperial's targeting of naive customers is a poor business model, especially with judicial oversight.

Imperial's conduct has not gone unnoticed. In a recent court decision, the New York Supreme Court wrote that Imperial's interest rates were "neither fair nor reasonable taking into account the actual amount [the customer] would be receiving. [The customer] would be receiving less than 1/3rd of the discounted present value... after legal fees and administrative fees".

Things appear to be changing. In recent years, Wentworth and RSL Funding have offered customers a better alternative. RSL informs customers when they are the victim of particularly egregious rates from Imperial that there is an alternative. RSL makes competitive bids for the purchase of their future payments.

"We've offered customers as much of $50,000.00 more than competitors for the same future payments," commented James Kelly, an RSL Funding's Senior Account Executive, about an offer made to a customer of an RSL competitor. RSL's Senior Account Executive, Derek Kopacz, commented, "When my customer received our offer of $35,000.00 more than our competitor for the same future payments, he was ecstatic. When he received our check a few weeks later, I became his best friend. He couldn't believe how badly he was being ripped off." Typically, RSL acquires payments free of fees and costs imposed on customers.
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