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GOTHAM CITY RESEARCH'S OPINIONS

  1. Ebix (NASDAQ:EBIX) improperly financed $100+ million of acquisitions and stock buybacks, tax free, under the guise of a bogus intercompany asset sale, between Singapore & India.
  2. Ebix Inc. & its subsidiaries' filings are materially incorrect. Singapore-related irregularities have worsened with time.
  3. Ebix meets the requirements for an "Event of Default", per Article VII (C) of the Credit Agreement.
  4. Cherry Bekaert never properly audited Ebix, as evidenced by BDO Sweden AB's warnings and the growing list of material accounting irregularities.
  5. Current shareholders are likely to recover little to no value, once the USA & Ebix's creditors enforce their claims.

SUMMARY OF FACTS

  1. There is a $1.8, $3.2, & $39.2 million cash flow irregularity within the 2009, 2010, & 2011 Singapore filings.
  2. No information is provided regarding Singapore's largest 2011 cash flow item, a $103 million related party item.
  3. Ebix Singapore sold Ebix Software Asia SEZ to itself for $66 million, and booked a $64 million gain (a 54x ROI).
  4. Swedish pre-tax income is less than %1 of the amounts claimed in the SEC filings, according to Swedish filings.
  5. In 2011, BDO Sweden was unable to obtain audit evidence that the Swedish subsidiary owns Ebix Singapore.
  6. BDO Sweden was unable to confirm that any of the dealings between Ebix's Swedish subsidiary, Ebix Singapore and Ebix Australia, ever actually occurred.
  7. The Singapore and Indian filings show materially differing amounts for Ebix Singapore's purchase of Ebix Software Asia SEZ. The difference exceeds $13 million.
  8. There is a $27 million unexplained irregularity in the related party loan liability, in the 2011 Balance Sheet.
  9. Ebix, Inc.'s auditor Cherry Bekaert Holland signed off on Ebix's 10Ks, despite all the above-mentioned problems.

INTRODUCTION

Just when we thought we were ready to move on from Ebix, Gotham City Research received a copy of Ebix Singapore's 2011 financial statements (released on July 30, 2013) and EIH Holdings AB (the Swedish subsidiary) 2011 filings in mid-August. We did not have the opportunity to review the filings until September. Once we did, however, we were shocked by what we found. We discovered a few smoking guns, and felt compelled to share our new findings with the public as soon as humanly possible.

So Why Ebix Again? New Problems in Singapore, Sweden, and India

We discovered material and growing holes in Ebix Singapore's Balance Sheets and Statements of Cash Flows. We also found a $103 million transaction, the single largest Statement of Cash Flows transaction in 2011, without a single sentence explaining what this might be (ironic, given that there is a footnote dedicated to explaining a $0.5 million transaction). Finally, we found a $27 million accounting deficiency in the 2011 related party loan balance, as well as an unexplained restatement of 2010's cash flows.1

Problems in Sweden

In addition to all the Singapore-related problems summarized above, we found a whole new set of problems in Ebix's Swedish subsidiary, EIH Holdings AB. Swedish filings reveal losses2, not the pre-tax earnings of $6-$7 million as claimed in the 2011 and 2012 SEC filings3. BDO Sweden, EIH Holdings' auditor, warned4:

We have therefore been unable to obtain audit evidence to support the Company's ownership of its subsidiaries, nor been able to confirm the dealings between the Company and the subsidiaries.

The Underlying Story?

Gotham City Research believes it has identified at least two underlying narratives that tie together nearly all the concerns raised in this report.

One of the key narratives: In 2011, Ebix wanted to finance over $100 million of acquisitions and stock buybacks, while avoiding taxes. We believe Ebix cut corners to achieve these objectives. This is why:

  1. Ebix devised a $66 million sale (realizing a $64 million gain) of Ebix Software Asia SEZ to Ebix India Private Ltd., enabling Ebix to transfer funds from India to Singapore.
  2. Ebix Singapore provides no details regarding the largest cash flow line-item in the 2011 filing.
  3. There is an accounting irregularity found with the 2011 $27 million Singapore related party loan.
  4. Ebix exploits the fact that US SEC filings are due within 2-3 months of the fiscal year end, whereas the Singapore and Indian subsidiaries financials seem due 12-18 months afterwards.
  5. The Swedish subsidiary's auditor, BDO Sweden AB, issued warning statements in 2011.
  6. Ebix stopped filing Swedish financial statements in 2012, and EIH Holdings AB was consequently liquidated by Swedish regulators in 2013.

NEW PROBLEMS EMERGE IN SINGAPORE AND INDIA

Gotham City Research's Core Thesis

Our thesis is best summarized by two, overarching narratives:

  1. In 2011, Ebix improperly financed $100+million of acquisitions and stock buybacks, tax free, under the guise of a bogus intercompany asset sale, between Singapore & India.
  2. Ebix Inc. and its subsidiary's financial statements are materially inaccurate (since 2009). Furthermore, the accounting irregularities and omissions have worsened with time.

The following new Singapore and India-related facts support our two-pronged thesis:

  1. Ebix Singapore sold Ebix Software Asia SEZ to itself for $66 million, and booked a $64 million gain, a 54x ROI.
  2. Ebix Singapore provides the least amount of information (i.e. no information) on its largest cash flow line-item, a $103 million transaction related party transaction in 2011.
  3. The related party loan balance oddly increases by $27 million in 2011. The notes claim proceeds were used to purchase intangible assets, yet the Statement of Cash Flows contradicts this claim.
  4. BDO Sweden was unable to confirm that any of the dealings between Ebix's Swedish subsidiary, Ebix Singapore and Ebix Australia, ever actually occurred. (See "Ebix's Swedish Problems")

As well as:

  1. There are material irregularities found in the 'Trade and other payables' accounts (a current liability) in the 2009, 2010, and 2011 filings. The irregularities are $1.8 million, $3.2 million, and $39.2 million respectively.
  2. Ebix Singapore's acquisition of Ebix Software Asia SEZ cost $13 million more according to the India filings than it did according to the Singapore filings.
  3. Ebix Singapore 2010 Statement of Cash Flows was restated in its 2011 filing without explanation.
  4. Swedish pre-tax income is less than 1% of the amounts claimed in the SEC filings, according to Swedish filings. (See "Ebix's Swedish Problems")
  5. In 2011, BDO Sweden was unable to obtain audit evidence that the Swedish subsidiary owns Ebix Singapore. (See "Ebix's Swedish Problems")

Ebix & Robin Raina failed to dispute or address the following irregularities identified in prior reports1

  1. 2010 Singapore intangible assets are misstated by $67 million.
  2. 2011 long-lived assets do not add up.
  3. The Confirmnet acquisition cost 30% more according to the India filings than it did according to the SEC filings.
  4. EZ-Data's IP was transferred to Singapore yet Raina says "No US IP has been transferred to any other country."
  5. The Robin Raina Foundation's IRS filings are full of material accounting irregularities.

Ebix Singapore's $66 million Sale of Ebix Software Asia SEZ in 2011 is a Sham Transaction

Ebix Singapore sold Ebix Software Asia SEZ Pvt Ltd to Ebix Software India Private Limited, and magically pocketed a gain of $64 million (a 54x return on investment) in just 3 years' time2:

(click to enlarge)

Note that Ebix Singapore owns both of the Indian subsidiaries, Ebix Software Asia SEZ Pvt Ltd and Ebix Software India Private Limited (India):

(click to enlarge)

This sale is highly unusual because it's as if the right hand received money from the left hand, and somehow minted a handsome profit, funded acquisitions + stock buyback, and avoided paying taxes all in one fell swoop. The economics of the transaction make little sense and does not meet the criteria of an arms-length transaction3:

Gotham City Research believes Ebix Singapore's "sale" of Ebix Software Asia SEZ is a sham transaction, devised in order to evade repatriation taxes related to its acquisitions and stock buybacks:

  1. Ebix's Indian subsidiaries generated zero external revenue since incorporation.
  2. A third party would not purchase Ebix Software Asia SEZ at a 54.1x multiple of cost, given it generated zero external revenue. Private market comparable company valuations would lead to a much lower valuation. A discounted cash flow analysis would also render a low valuation.
  3. Ebix wanted to utilize the $66 million 'stuck' in India, to finance acquisitions and stock buybacks while avoiding taxes.
  4. As a result of the in-flow of cash to Ebix Singapore, and subsequent acquisitions, Ebix was able to artificially and improperly reduce Ebix Singapore's leverage ratios.
  5. We believe Ebix has avoided public and regulatory scrutiny over this sham transaction, as its 2011 Singapore filing was not signed off by BDO LLP, its auditor, until July 15, 2013.
  6. It seems that BDO Sweden AB, the Swedish subsidiary's auditor, started to question the validity of Ebix's inter-company transactions in 2011 (See "Ebix's Swedish Problems")

Ebix Singapore Provides No Disclosure on Its Largest Cash Flow Line Item

'Due from holding company' happens to be the single largest item on the 2011 Statement of Cash Flows ($103 million). Yet there is not a single sentence hinting what it might be. This omission leads us to further believe that Ebix improperly funneled over $100 million out of Singapore4:

(click to enlarge)

Why else would Ebix Singapore provide a footnote for 'Issue of shares' (Note 12), a measly $0.5 million transaction, but not a footnote (or single sentence), to explain a $100+ million transaction?

BDO LLP, Ebix Singapore's Auditor, Signed Off on the 2011 Filings… in July 15, 2013

(click to enlarge)

It seems the Swedish regulators shutdown Ebix's Swedish subsidiary, EIH Holdings AB, because it too found all the above highly problematic. (See "Ebix's Swedish Problems")

The $27 Million Related Party Loan Accounting Irregularity

The loan payable account increased by over $27 million in 20115:

(click to enlarge)

Note 10 claims the loan payable was used for the purchase of intangible assets:

(click to enlarge)

The Statement of Cash Flows Does Not Support the Note 10 Explanation:

(click to enlarge)

As shown above, 'Purchase of intangible assets' in 2011 was zero. Yet the 'loan payable' balance, on the balance sheet, increased by $27 million. Something is amiss. We believe this deficiency supports our belief that Ebix improperly financed its acquisitions and stock buybacks in 2011. The proceeds from this $27 million loan were used to complete acquisitions and fund stock buybacks, not purchase intangible assets.

Cash Flow Irregularities Found in the Singapore 2009 Filing is a Big Problem for Ebix

Between 2003-2008, the calculated year-over-year changes in 'Trade and other payables' as shown on the Balance Sheets were nearly identical to the 'Trade and other payables' amounts shown in the 'working capital changes' section within the Statement of Cash Flows6:

(click to enlarge)

Something changed in 2009, as the calculated amount differs from the disclosed amount, as highlighted.

From the Singapore 2009 Balance Sheet:

(click to enlarge)

From the Singapore 2009 Statement of Cash Flows:

(click to enlarge)

Strangely enough, Ebix Singapore's Interest Expense for 2009 is identical in amount to the $1,783,523 difference between the calculated and reported change in payables:

(click to enlarge)

The Interest Expense shown above corresponds to the original undisclosed related party loan Gotham City Research uncovered:

(click to enlarge)

The Singapore 2009 Filing Does Not Explain How the Payable Irregularity Equals the Interest Expense

The 2009 Interest Expense is added back, in its full amount, in the Statement of Cash Flows:

(click to enlarge)

Adding back the 'Interest expense' to cash flow from operating activities mathematically reconciles the $1,783,525 irregularity between the calculated and reported change in 'Trade and other payables'

However, this apparent mathematical reconciliation makes no sense:

  1. 'Trade and other payables' is a non-interest bearing account, i.e. there is no interest expense associated with it. An interest expense-related adjustment, therefore, is out of the question.
  2. 'Trade and other payables' represents management and consulting fees. 'Management and consulting fee' are unrelated to the related party loan.
  3. 'Trade and other payables' is a current liability, whereas the related party loan is a non-current liability.

Note 8 Supports the Above Two Points:

(click to enlarge)

Note 10 Supports Our Concerns:

(click to enlarge) (click to enlarge)

Note 16 provides no clarity. Moreover, there is no mention that the interest expenses was a non-cash expense (if it were a non-cash expense, it would make sense to add it back to cash):

(click to enlarge)

Gotham City Research believes in the following possible explanations (none bode well for Ebix):

  1. The interest expense add-back to the Statement of Cash Flows was created so that the Balance Sheet and Statement of Cash Flows reconcile. That is, it was created in order to disguise the irregularity.
  2. The irregularity is a symptom of a much larger problem. For example, maybe the 2009 Singapore loan transaction never actually occurred, and Ebix had difficulty reconciling all their shenanigans. The Singapore filings and transactions are all sham, paper transactions… and the company is caught in the act, as the numbers don't tie in together.
  3. Not only is the interest expense added back to disguise the irregularity, it was designed to conceal illicit activities, e.g. money laundering. Some of the numbers are accurate. The unexplained differences are reconciled by money laundering and other improper activities.

The Accounting Irregularities Worsen in the Singapore 2010 and 2011 Filings

The 'Trade and other payables' irregularities found in the 2010 and 2011 financial statements are far larger than the 2009 irregularity7:

(click to enlarge)

Note the following troubling facts:

  1. The 2010 irregularity of $3.2 million is ~2x greater than the 2009 irregularity of $1.8 million.
  2. The 2011 irregularity of $39 million is ~10x greater than the 2010 irregularity of $3.2 million.
  3. There are no financial notes in the 2010 and 2011 Singapore filings that explain the above irregularities, just as there were no notes within the 2009 financial statements to explain the $1.8 million irregularity.

Ebix Singapore Restates Its 2010 Statement of Cash Flows in the 2011 Filing, Without Any Explanation

It is fairly common knowledge among short sellers, forensic accountants, and fraud experts that the Statement of Cash Flows, specifically the 'Cash Flows from Financing Activities', is the most difficult statement to fabricate. It is also the most difficult statement to restate.

Ebix Singapore somehow managed to drastically restate its 2010 Statement of Cash Flows in its 2011 filing. It achieved this feat without a single word explaining how or why it restated the 2010 numbers.8

For starters, Ebix introduces new line items to the Statement of Cash flows:

(click to enlarge)

The 'Due from holding company' and 'Due from related companies' line-items did not exist in the 2010 (or any prior filings). In fact, nowhere else are these items mentioned in the 2011 filing. This is the first and last time you see these items mentioned in the 2011 fiing. And It gets worse.

What was the Sale Price of Ebix Singapore's Sale of Ebix Software Asia SEZ to Itself? It's Unclear

Earlier in this report, we highlighted the economic absurdity of marking up an asset 54x and selling it to oneself for a tidy, tax-free profit. A major accounting inconsistency further undermines the credibility of the transaction, as the purchase price according to Ebix Software India's 2011 filings materially differs9:

(click to enlarge)

The snapshot above shows that aggregate consideration for the sale was INR 1,922,487,840 (May 2011).

  1. The transaction cost $52.9 million, according to the Indian filing (0.275 SGD INR exchange rate).
  2. The transaction cost $66.0 million, according to the Singapore filing
  3. The difference is just over $13 million.

This $13 million irregularity reminds us of the Confirmnet irregularity we identified in our first report10:

(click to enlarge)

The 2010 and 2011 Filings Contain a Deferred Income Related Accounting Error

The 2010 deferred income current liability account, and/or the change in deferred income reported on the Statement of Cash Flows are incorrect11:

(click to enlarge)

Deferred income grew from $0 to $7,874 in 2010, which means that working capital should have increased by $7,874. The Statement of Cash Flows, instead, shows a decline of $7,874. The 2011 filing does not correct this error.

EBIX's SWEDISH PROBLEMS

Over the last several years, very little has been said about Ebix's Swedish operations. In fact, the only article that seems to mention Ebix's Swedish subsidiary, EIH Holdings AB, with some detail is a fairly recent Bloomberg story titled, Ebix's Raina Loses Magic Touch as U.S. Probes Accounting, dated June 21, 2013. Buried somewhere in the middle of that article1:

EIH Holdings, the company's Swedish subsidiary, is being liquidated by Swedish regulators for lack of timely filings. Yet, according to SEC filings approved by Cherry Bekaert, the Swedish unit earned $7 million of the company's $78 million in pre-tax income last year.

In a more recent story, Ebix Said to Be Reviewed by U.S. for Money Laundering, dated August 7, 2013, Sweden is mentioned in passing2:

One of the people familiar with the probe is a former Ebix executive who was contacted by FBI agents. Federal Bureau of Investigation agents asked him about the company's wiring of funds to operations in locations such as India, Sweden and Singapore, the person said.

It is Gotham City Research belief that some of Ebix's more flagrant and obvious offenses are found in Sweden. Specifically:

  1. Ebix's Swedish earnings are less than 1% of the $6.3 million and $7.0 million pre-tax earnings claimed in Ebix's 2011 & 2012 10K filings respectively, based on EIH Holdings AB's filings.
  2. In 2011, BDO Sweden was unable to obtain audit evidence to support EIH Holdings AB's ownership of its subsidiaries.
  3. BDO Sweden AB was unable to get confirmation of any dealings between EIH Holdings AB and its subsidiaries for fiscal year 2011.
  4. EIH Holdings AB's liquidation is complete as of the writing of this report (it was 'in liquidation' as recently as several weeks ago), due to lack of timely filings.
  5. Ebix and Cherry Bekaert (Ebix Inc.'s auditor) signed off on Swedish pre-tax earnings numbers in the 2012 10K, despite the fact that the fully liquidated EIH Holdings AB never filed its 2012 financials. It seems CBH has also ignored BDO Sweden's warnings.
  6. There is an undisclosed Swedish subsidiary, EIH Holdings Sweden AB. It was incorporated in September 2012, yet it is not mentioned as a subsidiary in Ebix's 2012 10K filing.

Swedish Income As Claimed in US Filings Are Not Supported by Swedish Filings

EIH Holdings AB filings show net losses - not net earnings - versus the SEC filings, which claim Swedish pre-tax earnings between $6 - $7 million for 2011 and 20123:

The 2011 10K claims $6.3 million pre-tax income from Sweden for 2011:

(click to enlarge)

The 2012 10K claims $7.0 million pre-tax income from Sweden for 2012:

(click to enlarge)

However, the 2011 EIH Holdings AB Income Statement Says Otherwise:

(click to enlarge)

RESULTATRAKNING = Income Statement

Arets Resultat = Net Profit

As the next page shows, it seems there are no good explanations for the irregularities shown above. The conclusion that seems most consistent with the facts is that the Swedish pre-tax income is massively overstated in Ebix's 2011 and 2012 10K filings, and that the resulting tax benefit (taxed at a 0% statutory tax rate) should not exist.

EIH Holdings AB Is Fully Liquidated and its 2012 Filing Does Not Exist

EIH Holdings AB 2012 filing does not exist. In fact, the Swedish regulator likely liquidated EIH Holdings AB precisely because it failed to file its 2012 filing, "EIH Holdings AB 'Likvidation avslutad' (Liquidation Complete)"4:

(click to enlarge)

EIH Holdings Kommanditbolag Has Not Filed Financial Statements since 20065

(click to enlarge)

Undisclosed Swedish Subsidiary

According to the Swedish regulator, there is an additional Swedish subsidiary (in addition to EIH Holdings AB and EIH Holdings KB), called EIH Holdings Sweden AB6:

(click to enlarge)

There is no mention of EIH Holdings Sweden AB in the 2012 10K filings Exhibit 21.1 (list of subsidiaries), even though its articles of association were adopted on September 4th, 2012:

(click to enlarge)

Cherry Bekaert Did Not Audit Ebix (or So We Suspect)

Ebix's Stock Deserves to be Halted

In our first Ebix-related report, The Truth about Ebix, Robin Raina, and the Robin Raina Foundation, released February 21st 2012, we stated1:

Investors should seriously doubt the accuracy, reliability, completeness of Ebix's financial statements, disclosures, and past remarks. We doubt CBH obtained reasonable assurance that Ebix's financial statements & schedules were free of misstatement, contrary to their claims otherwise.

We believe that Ebix's stock should be halted, until its financial statements are reliable, accurate, and complete. We also believe the current auditor has to go, as they're not doing their job.

We not only stand by the above stated opinions, we now believe that Cherry Bekaert never properly audited Ebix's financial statements.

The following serve as the bases of our opinions:

  1. In 2011, BDO Sweden was unable to obtain audit evidence to support EIH Holding AB's ownership of its subsidiaries.
  2. BDO Sweden was unable to get confirmation of any dealings between EIH Holdings AB and its subsidiaries for fiscal year 2011.
  3. EIH Holdings AB was liquidated by Swedish regulators for lack of timely filings. EIH Holdings never filed financial statements for 2012.
  4. SEC filings approved by Cherry Bekaert show the Swedish unit earned $7.0 million of pre-tax income in 2012 and $6.3 million in 2011, even though the 2011 Swedish filing shows a net loss.
  5. Cherry Bekaert approved Ebix's 10K filings for the 2009-2012 fiscal years, despite all the material accounting irregularities we identified in Ebix Singapore's 2009-2011 filings.
  6. Unclear how CBH has obtained reasonable assurance that Ebix's financial statements & schedules are free of misstatement, if Ebix Singapore's audited financial statements for 2009, 2010, and 2011 were signed off by BDO 1.25-1.75 years after fiscal year end.

BDO Sweden AB's 2011 Warning2

(click to enlarge)

Translation of BDO Sweden AB's 2011 Warning

Basis to refrain from statement

Financial statements of the subsidiaries have not been finalized yet and details of income and equity in Note 2 applies in 2010.

We have therefore been unable to obtain audit evidence to support the Company's ownership of its subsidiaries, nor been able to get confirmation of any dealings between the Company and the subsidiaries.

Not only was BDO unable to verify basic facts about EIH Holdings AB, it re-used 2010 figures in 2011.

From the 2011 EIH Holdings AB Filing:

(click to enlarge)

Uppgifter om eget capital och resultat - Data on equity and earnings

Eget Kapital - Equity

Resultat - Earnings

From the 2010 EIH Holdings AB Filing3:

(click to enlarge)

The 2010 and 2011 Equity and Earnings Amounts Should Differ…but they are identical, because BDO Sweden was unable to verify 2011's numbers.

Event of Default

Gotham City Research Believes Ebix Meets the Requirements for an Event of Default

We believe Ebix meets the requirements for a default on its credit facilities and loans, and that creditors have the ability to demand immediate payment of principle + interest. We also believe it is in the creditors' best interests to do so as soon as possible.

The following serve as the bases of our opinions:

  1. Ebix, Inc's financial statements contain material irregularities, as described in this report as well as past reports.
  2. Ebix, Inc's subsidiaries' financial statements (including but not limited to Ebix Singapore, EIH Holdings AB, and the Indian subsidiaries) are materially incorrect, as described in this report and elsewhere.
  3. Article VII of the Credit Agreement Dated April 26, 2012 describes the situation in which Ebix and/or its subsidiaries' financial statement(s) are materially incorrect.

ARTICLE VII from the Credit Agreement dated April 26, 20121

Events of Default

If any of the following events (each an " Event of Default ") shall occur:

any representation or warranty made or deemed made by or on behalf of any Loan Party or any Subsidiary in or in connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been materially incorrect when made or deemed made;

What Happens in the Event of Default

then, and in every such event (other than an event with respect to the Borrower described in clause (NYSE:H) or (NYSE:I) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable

What Happens in the Event of Default (continued)

together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause or of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Upon the occurrence and the continuance of an Event of Default, the Administrative Agent may, and at the request of the Required Lenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC.

The IRS and Creditors Get Paid Before Shareholders

Many Ebix shareholders seem unaware that the US Government (the IRS, SEC, and/or DOJ) and Creditors get paid before shareholders do. Lest you forget: The US Government and creditors are senior claimants, whereas shareholders are last in the pecking order. Here's a visual reminder:

(click to enlarge)

If either of the following events occurs:

  1. Ebix's creditors demand payment, citing a Section VII related event of default, the IRS is more likely to take swift action, to ensure it is paid before creditors. It is unclear if the government gets paid before creditors in this scenario. What is clear is Ebix faces double jeopardy, wiping out current shareholders.
  2. If the IRS takes action against Ebix before creditors, that in turn, will trigger an event of default. Ebix faces double jeopardy, wiping out current shareholders.

The moral of the story: with so many different regulatory entities involved, shareholders should not treat these risks as linearly independent events. They are not mutually exclusive.

Shareholders should note that they were handsomely (and prematurely) rewarded in 2011, in the form of a very large stock buyback…likely funded by the sham Singapore 2011 sham sale/transaction. The short term buy-back fueled gain may prove to be a source of long term pain.

Ebix Has Harmed (or is alleged to have) Each and Everyone of its Stakeholders

It has occurred to us that Ebix has harmed (or is alleged to have harmed) each and every one of its stakeholders. We could not think of a single stakeholder that has remained untouched:

  1. The US Government/US Taxpayers - Ebix is believed to owe back taxes, interest, and penalties, to the tune of $100+ million. If we are correct about the Ebix Singapore sham sales described earlier in this report, Ebix will likely owe $40-$50 million on that offense alone.
  2. Creditors - Creditors trusted and lent to Ebix, believing its financial statements were accurate. We believe this report offers sufficient evidence that Ebix's filings are materially incorrect.
  3. Vendors - Microsoft alleges Ebix has underpaid for its use of Microsoft products & services.2 What's particularly disturbing is that Microsoft gave Ebix plenty of opportunity to audit itself, yet it did not. We wonder if Ebix has short-changed other vendors.
  4. Managers and Employees - Former employees/managers have alleged reneging on contract, underpayment, and other grievances. See the various lawsuit complaints for more details.
  5. Shareholders - Shareholders invested in Ebix, trusting Robin Raina and relying on the accuracy of Ebix's financial statements.
  6. Overall public - False charity claims have led many to believe that Mr. Raina's charitable activities were far greater than they actually were.3

End Notes

INTRODUCTION

  1. Ebix Singapore PTE LTD Report of the Directors and Financial Statements for the financial year ended 31 December 2011 obtained via ACRA website: http://www.acra.gov.sg/
  2. EIH Holdings AB Financial Statements for the year ending December 31, 2011. Obtained from: https://foretagsfakta.bolagsverket.se/fpl-dft-ext-web/home.seam
  3. Ebix 2011 10K and 2012 10Ks
  4. EIH Holdings AB Financial Statements for the year ending December 31, 2011. Obtained from: https://foretagsfakta.bolagsverket.se/fpl-dft-ext-web/home.seam

New Problems Emerge in Singapore and India

  1. The Truth about Ebix, Robin Raina, and the Robin Raina Foundation, February 21, 2013
  2. Ebix Singapore PTE LTD Report of the Directors and Financial Statements for the financial year ended 31 December 2011 obtained via ACRA website: http://www.acra.gov.sg/
  3. Ebix Singapore PTE LTD Report of the Directors and Financial Statements for the financial year ended 31 December 2011, Ebix 2011 10K
  4. ""
  5. ""
  6. Ebix Singapore Filings 2003 - 2011
  7. Ebix Singapore Filings 2008 - 2011
  8. Ebix Singapore Filings 2010 - 2011
  9. Ebix Software India Private Limited 2011 filing
  10. The Truth about Ebix, Robin Raina, and the Robin Raina Foundation, February 21, 2013
  11. Ebix Singapore Filings 2008 - 2011

Ebix's Swedish Problems

  1. Ebix's Raina Loses Magic Touch as U.S. Probes Accounting, by Greg Farrell, June 21, 2013 http://www.bloomberg.com/news/2013-06-20/ebix-s-raina-loses-magic-touch-as-u-s-probes-accounting.html
  2. Ebix Said to Be Reviewed by U.S. for Money Laundering, by Greg Farrell, August 7, 2013 http://www.bloomberg.com/news/2013-08-06/ebix-said-to-be-reviewed-by-u-s-for-money-laundering.html
  3. EIH Holdings AB Financial Statements for 2010 and 2011. Obtained from: https://foretagsfakta.bolagsverket.se/fpl-dft-ext-web/home.seam . Ebix 2011 and 2012 10Ks.
  4. https://foretagsfakta.bolagsverket.se/fpl-dft-ext-web/home.seam
  5. ""
  6. ""

Cherry Bekaert Did Not Audit Ebix (or So We Suspect)

  1. The Truth about Ebix, Robin Raina, and the Robin Raina Foundation, February 21, 2013
  2. EIH Holdings AB Financial Statements for the year ending December 31, 2011. Obtained from: https://foretagsfakta.bolagsverket.se/fpl-dft-ext-web/home.seam
  3. EIH Holdings AB Financial Statements for the year ending December 31, 2010. Obtained from: https://foretagsfakta.bolagsverket.se/fpl-dft-ext-web/home.seam

Event of Default

  1. Ebix 8K, April 26, 2012
  2. Microsoft vs Ebix complaint
  3. The Truth about Ebix, Robin Raina, and the Robin Raina Foundation, February 21, 2013
Source: Ebix: New Problems Emerge In Singapore, Sweden And India