“Shares of life insurance settlement provider Life Partners Holdings Inc. (LPHI: News ) went down by over 13% at close of Wednesday’s trading, after an analyst research report called its fees egregious and non-sustainable, and put out a warning to potential investors.”
Citron advised investors to consider carefully as the company had “too many red flags”. The analyst termed the high-level fee of $500 thousands per transaction that was being charged by the company as “egregious” and not “sustainable”.

The report claimed that Life Partners’ gross commissions were 14.4% of the face value of policy settlements in its third quarter that ended on November 30, 2008. But, on an average, the fee is only about 6.0% of the face value or 30% of the gross sale price for such companies.

The report further claimed that investors of life settlements normally seek target of an Internal Rate of Return or IRR’s of 9%-13%, but Life Partners promised as high as a 16% IRR to its investors.

Citron infers, “If Life Partners is forced to cut margins even by half to approach industry norms, its net profit will sink by 63%.” The report concluded that Life Partners sustained their high-level fee income only by “concealment.”