The Truth About Robin Raina's Ebix: Part I

| About: Ebix Inc (EBIX)


We first heard about Ebix (NASDAQ:EBIX) last October, when we saw an Ebix-related lawsuit hit our inboxes. These kinds of lawsuits are normally thrown out in federal court, but this one did not get thrown out. Our interest in the Ebix story increased as we read through the complaint.

Given the alarming accusations in the lawsuit, we soon decided to investigate for ourselves, and take a fresh look into the company. We read over 10,000 pages of documents from Sweden, Singapore, India, Australia, New Zealand, & the United States pertaining to the company. We consulted with professionals from the disciplines of forensic accounting, law, transfer pricing, background investigations, finance, and software. We found assets not adding, cash disappearing, and management misrepresenting. The more we looked, the more we found reality to be far worse than the prior critics had made it out to be.

For example, we discovered a $66 million undisclosed related party loan1, $67 million accounting irregularity in long-lived assets2, and Australian revenues at a fraction of what the SEC filings disclosed, per the Australian filings3. We concluded that (i) Ebix's financial statements are unreliable, inaccurate, and incomplete, (ii) their tax strategy does not appear sound, and (iii) the stock should be halted.

We decided it was important to go public with our findings after we found out that Robin Raina's misrepresentations did not end with Ebix. For starters, he recently exaggerated to the South Asia Times (who named him man of the year) how much the Robin Raina Foundation ("RRF") typically gives every year4:

South Asia Times: How much you give to the foundation? What is its annual outlay?

Robin Raina: I hate to talk about it. But yes, a majority of the money that comes in for the foundation comes from me. In a given year, RRF will typically spend about $2 million.

In fact, RRF has spent at most $3.7 million combined since inception, as the IRS Form 990s reveal5:

Raina's bogus claims to the South Asia Times are morally reprehensible, but not illegal. We do wonder, though, about his declarations that RRF's form 990s are "true, correct, and complete", made under penalties of perjury.6 As it turns out, there are, in fact, accounting irregularities found in the Robin Raina Foundation's form 990s, as we discuss later in this report.

As Autonomy, Lernout & Hauspie, AremisSoft, Network Associates, and other epic software frauds remind us: when you put together a bunch of bushes, you don't get a tree - you get a bunch of scraggly, old bushes. We believe Ebix is no different, having grown largely due to its improper tax strategy, luck, dodgy acquisitions, and Raina's ability to fool some of the people, all of the time. We believe that the chickens are about to come home to roost for Ebix and Raina.

Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don't have the first, the other two will kill you. - Warren Buffett


What Ebix and CEO Robin Raina Have Said Regarding the Integrity of the Company and Its Filings

On April 1st, 2011 (April Fool's Day), a week after a negative report was published on Seeking Alpha1, CEO Robin Raina hosted an Investor Conference. The below slide is from said conference2:

On November 5th, 2012, a Bloomberg story titled Ebix Accounting Practices Said to Be Probed by SEC3 claimed that Ebix "is being investigated by the U.S. Securities and Exchange Commission for its accounting practices, four people with direct knowledge of the probe said."

Ebix swiftly issued a press release4, in which Robin Raina, Chairman, CEO and President of Ebix, said:

We stand behind the accuracy of our public filings.

Is Robin Raina, Chairman, CEO and President of Ebix telling the truth, the whole truth, and nothing but the truth?

We believe Ebix's financial statements are unreliable, inaccurate, and incomplete and that the company will have to restate historical results for the following reasons:

I. Undisclosed Related Party Transactions and Assets That Don't Add

  1. There is a $66 million undisclosed related party loan between Ebix Singapore and an unnamed related company.
  2. Ebix's 2010 long-lived assets don't add up. The Singapore irregularity alone is $67 million. That's equal to 94% of Ebix's 2011 GAAP net income and just under 10% of the company's market cap.
  3. 2011 long-lived assets on the balance sheet do not add up to the long-lived assets in note 16.
  4. The total cost of Confirmnet is off by 30+% between the Indian filings and SEC filings.

II. Evidence That Reported Revenues and Accounts Receivable Are Not Accurate or Reliable

  1. Ebix's Australia revenues, as disclosed in ASIC filings, are only a fraction of what SEC filings show.
  2. 20%-40% of accounts receivable seem of dubious quality, given the growth in unbilled receivables and odd inclusion of deferred revenue within accounts receivable.
  3. Ex-employees have raised doubts on the accuracy and reliability of Ebix's account receivables.

III. Other Critics Have Voiced an Entirely Different Set of Concerns About Ebix's Reported Figures:

  1. Organic growth misrepresentation5 - Ebix's most recent 10Q (Q3'12) implies they misrepresented organic growth in the 10Q's filed for Q1'12 and Q2'12, and organic growth has gone negative. Past organic growth (prior to 2012) rates are suspect, likely misrepresented as well - Raina says that 11 percentage points of last year's revenue growth were organic.
  2. Weak, non-existent, & inadequate internal controls - Ebix has had 4 auditors in the last 8 years, and "As Ebix has gotten larger, its audit firms have gotten smaller."6

While the concerns we've identified are the most serious to date, the combination of what we've uncovered and what's already out there leaves us with no doubt that Ebix's financial statements are not accurate, reliable, or complete.

Once revenues are suspect, everything else in the income statement is suspect, as every line-item flows through the P&L. Small changes in reported revenue have an amplified effect on EPS (the exact multiplier depending on financial and operating leverage).

And once a company is not disclosing a material related party loan (in an amount roughly equal to Ebix's 2009 and 2010 tangible assets), who knows what else they're hiding?

The $65.8 Million Undisclosed Related Party Loan Between Ebix Singapore and a Related Party

One of the biggest concerns that some market participants have voiced is that they just can't seem to get around trusting Ebix. Others, such as Jeff Van Rhee of Craig Hallum, seem to trust (without verifying) Robin Raina's claims and Ebix's financial statements.7

We believe that it is actually much worse than even the skeptics think: for starters, the company has never disclosed a $65.8 million loan between its Singapore subsidiary and an undisclosed related party. From the Singapore filings8:

The loan to Singapore is outstanding as of the 2010 financial statements. We don't know of its status beyond 2010 as Ebix has yet to even file its 2011 filings9, as of the writing of this report. Both the 2009 and 2010 filings indicate that the loan "is not expected to be repaid within the next 12 months":

It would seem that the loan is, by definition, a loan of indefinite duration. A loan with such lax terms does not seem remotely consistent with an arm's length transaction (more on this later).

The Singapore financial statements make it very clear that Ebix Singapore purchased intangible assets with the proceeds from said loan, as shown in the statement of cash flows:

Strangely, Ebix's Australian filings Do Not Reflect Any Corresponding Inflow or Outflow of Cash

The following footnote reveals that most of the intangible assets were purchased from Telstra (subsidiary of Ebix Australia):

So where did the money flow? The Singapore filings imply it flowed to Australia. The Australian filings, then, should reflect the sale of intangible assets to Singapore10:

The 'Investments' account clearly reflects a major decline (of just under 50 million aussie dollars). That looks about right, and appears to correspond to the sale of intangible assets to Singapore.

Where things get very strange: there is no corresponding increase in cash on the balance sheet; equally disturbing is that the decline in the 'investments' account is not reflected at all in the statement of cash flows:

The liabilities section of the balance sheet shows an account with a similar decline in the same period:

Specifically, there is a decline in 'Trade and Other Payables' in an amount that seems on the same order of magnitude as the decline in investments account. The specific sub line-item is called 'amounts payable to related parties'. Mathematically, the decline in the investment account mirrors the decline in amounts payable to related entities. They appear to cancel each other out to balance the balance sheet.

Here's the problem: neither the decline in the investments account (as mentioned), nor the decline in payables is found in the statement of cash flows. Nor is there a footnote that explains these declines.

Gotham City Research believes in three possible explanations (and none of them bodes well for Ebix):

  1. The undisclosed related party loan and (corresponding IP purchase transactions) are "sham in fact" transactions, i.e. they never actually occurred;
  2. Ebix Singapore did receive said loan from an undisclosed related party, but the money is unaccounted for;
  3. Ebix Singapore did receive said loan from an undisclosed related party, and sent proceeds off to some completely unmentioned entity, let's call it party X, who then forgave the Ebix Australia's payables.

In either 3 scenarios, the simple question is "why"? We can't think of any good reasons, but we can think of plenty of bad reasons.

The best case scenario we can think of is scenario number 3. But in that case, the absence of any disclosures to US investors, (ii) lack of any disclosures regarding this hypothetical 'party X' in the Singapore filings, and no inflow of cash or explanation in the footnotes of Australian filings lead us to believe that these lies of omission were motivated by some (economically) rational reason: namely, to improperly minimize taxes. For more, see the tax section.

Ebix's Australian Revenues and Profits Are Only a Fraction of What SEC Filings Show, per ASIC filings

We examined the financial statements of Ebix Australia (VIC) Pty Ltd, made available by the Australian Securities and Investment Commission ("ASIC") & found that Ebix's revenues & pre-tax profits, according to the ASIC filings, are only a tiny fraction of what's stated in Ebix's SEC 10Ks11:

The revenue and pre-tax income irregularities are particularly odd given that the long-lived assets, cash balances, and employee count look far more similar, between the SEC and ASIC filings.

For example the 2011 Australian filing claims 74 employees (they mysteriously did not fill out and reveal employee count in the 2010 ASIC filing), while the 10K 2010 claims 77 employees (Ebix stopped reporting employees by geographic segment in 2011 10K).12

Also, while Ebix does disclose having 3 total subsidiaries in Australia, Ebix Australia Pty,. Ltd., Ebix Australia (VIC) Pty. Ltd., and Ebix Exchange-Australia PTY LTD, Ebix Australia (VIC) Pty Ltd's financial statements clearly show that it fully owns Ebix Australia Pty,. Ltd. and Ebix Exchange-Australia PTY LTD:

Recall, Australia is the only country where Ebix has any significant revenues outside of the US:

Ex-employee Statements and the Composition + Quality of Accounts Receivables Cast Doubt on the Reliability and Accuracy of Ebix's Reported Revenues

Ex-employees have questioned the reliability and accuracy of Ebix's receivables13:

  1. "Unable to determine which customers had made payment for which projects."‖
  2. "A former Ebix account manager, who had worked for E-Z Data prior to the acquisition and continued to work for Ebix until early 2011, confirmed declining growth."
  3. "As of last quarter, our accounts receivable area became a major concern to senior management and to our stockholders."
  4. "A former senior executive of Connective Technologies, Inc., confirmed not only the experience of Peak with respect to Ebix's inability to provide accurate financials on which to base his earn out…"
  5. "Constant errors" in "billing and administrative processes" left Ebix's employees "unable to properly produce invoices to customers in a timely manner."
  6. "Ebix's accounting procedures were plagued by errors. Ebix was consistently unable to properly bill customers, tie customer payments to invoices issued by Ebix…provide basic financial data, or calculate Peak's revenue."
  7. "As a result of the significant billing problems caused by Ebix, Peak did not properly allocate sales and revenue into the appropriate accounting periods. As a result, upon information and belief Peak overstated its accounts receivable."
  8. "Ebix was consistently unable to tie customer payments to specific invoices. As a result of Ebix's failure to account for customer payments, Ebix was unable to manage accounts receivable for Peak, & Ebix is unable to create & maintain accurate books and records."

20%-40% of Accounts Receivables Seem of Dubious Quality, per Close Examination of the SEC filings

We believe at least 20-40% accounts receivables are of dubious quality. We believe Ebix is utilizing a toxic combination of aggressive accounting - rising unbilled receivables, a low shrinking reserve for doubtful accounts, and unusual inclusion of deferred revenue within receivables.

Unbilled Receivables

Unbilled receivables have been used as a classic financial shenanigan to aggressively recognize revenue, especially when its growth has outpaced overall A/R growth and revenue growth14. Ironically (or perhaps not), Ebix's auditor authored a white paper on unearned receivables15. The below table shows how unbilled receivables growth outpaced total receivables growth recently16:

Despite all the issues that employees have identified regarding Ebix's receivables, allowance for doubt accounts has actually been trending down, as a percentage of receivables, even as unbilled receivables as a percentage of receivables has been rising.

Deferred Revenue as a Component of Accounts Receivable

Ebix started including deferred revenue into its accounts receivable account (even though it reports a separate deferred revenue account as a liability) as soon as Cherry Bekaert Holland became its auditor in 200817. The amount of deferred revenue Ebix includes within accounts receivable is buried in the notes, making it difficult for most investors who don't read the notes. The below table shows how the deferred revenue included within accounts receivable has grown at a faster clip than accounts receivable:

The inclusion of deferred revenue within the accounts receivable account is exceedingly rare, based on our experience.

Rather than relying on our judgment, however, we consulted a few accounting experts, who have been studying these issues for decades. We asked Dr. Edward Ketz, Professor of Accounting at Penn State University, and author of Hidden Financial Risk and Accounting Ethics: "Have you ever seen a company include a portion of their deferred revenue in accounts receivable?"

He said18:

Never. Deferred revenue means you have received cash but have not provided the product or the service to the customer, so you recognize the liability-the fact that you owe them a product or a service.

If you have a receivable instead, I think this falls into the category of executory contracts. The customer is promising to pay you and you are promising them something in exchange. The profession has a bias against recognizing such mutual promises, as the profession seems not to recognize most executory contracts.

According to another accounting expert we spoke with, he stated that it is exceedingly rare and unusual for a company to include deferred revenue in A/R. He added that it does occur in cases where a company nets it out of accounts receivable. However, the same accounting expert said he's never seen deferred revenue included within accounts receivable in the event there is a separate deferred revenue account (which Ebix has).

Based on our independent research, the evidence seems to support Professor Ketz and the other expert we spoke to: we found less than 5 cases where deferred revenue is included within accounts receivable; in most of the cases, it was netted out due to an absence of a deferred revenue account.

Ebix's 2010 Long-Lived Assets Don't Add Up. The Singapore Irregularity Alone Is $67 Million (94% of GAAP 2011 Net Income and Just Under 10% of the Market Cap)

Contrary to Mr. Raina's claims suggesting that all Ebix's public filings are accurate, we subsequently found material irregularities in the reporting of 2010's long-lived assets. The irregularity in the Singapore long-lived assets alone is $67 million, which is roughly equal to Ebix's entire 2011 GAAP earnings. The table below shows the irregularities, that is the 2010's long-lived assets as reported in the 2010 10K vs 2011 10K19:

We highly doubt that these accounting irregularities were made by accident; Ebix has had plenty of time, and has filed 5 amended 10Ks just in the last 2 years. In fact, none of the amended 10Ks corrects these irregularities, nor has there been an amended filing released for 2010's 10K. If they wanted to get this right, we believe they would've done so by now, especially given all the extra public scrutiny the company has received in the last 2 years.

Three Different Numbers for the 2010 Singapore Long-Lived Assets

A superficial examination of the 2011 10K would lead many to believe that Ebix and/or Cherry Bekaert Holland corrected the 2010 long-lived asset numbers in the 2011 10K. We believe the 2010 long-lived assets numbers from both the 2010 and 2011 10Ks remain unreliable and inaccurate, for the simple reason that the 2010 Singapore long-lived assets number does not agree with the figures provided in the 2010 and 2011 10Ks20:

No matter which exchange rates you use to convert from USD to SGD and visa versa (within the range that the SGD USD actually traded in 2010), the 2010 Singapore long-lived assets number reported in the 2011 10K does not equal that found in the Singapore 2010 filings.

We believe these irregularities point to a much more serious problem: Ebix's reported financials are unreliable and inaccurate. If the goodwill and intangible assets are materially unreliable, then Ebix's profits by segment are materially unreliable, as they directly impact amortization expense, which materially and directly impact segment profits.

If the Singapore intangible Asset Numbers Are Suspect, So Is the Alleged Singapore Tax Scheme

The company claims21:

The Company also has a relatively low income tax rate is in Singapore in which our operations are taxed at a 10% marginal tax rate as a result of concessions granted by the local Singapore Economic Development Board for the benefit of in-country intellectual property owners.

The irregularities shown above cast a shadow over Ebix's stated tax strategy in Singapore. After all, if there are three different numbers for the 2010 Singapore long-lived assets (and most of the long-lived assets are intangible assets), is not the stated tax strategy suspect as well? The basis of said tax scheme is intellectual property (which is included in the intangible assets), according to Ebix.

As we discuss in greater depth, it turns out this is only the tip of the iceberg, as there are bigger problems with Ebix's claimed tax strategy.

2011 Long-lived Assets on the Balance Sheet Show One Number, While Note 16 Shows Another

After uncovering the 2010 long-lived asset irregularities discussed, we then looked to verify and cross check the long-lived asset figures disclosed in note 16 (of the 2010 and 2011 10Ks) to the long-lived asset figures that could be derived from the consolidated balance sheet.

We found that 2011's long-lived assets as calculated from the consolidated balance sheet do not equal the total long-lived assets number found in note 16. The 2010 numbers add up; 2011's do not as shown below22:

No matter how we calculate long-lived assets, either subtracting current assets from total assets or (ii) adding up the long-lived assets one by one, neither calculation equals long-lived assets found in note 16.

In our experience studying and uncovering some of the great accounting-related frauds in the last 20 years, one common characteristic many have shared: basic, straight-forward numbers that should add up, don't. Even if these specific discrepancies are small in isolation, they are indicative of much bigger problems.

How Much Did Ebix Pay for Confirmnet (including earnouts)? The Ebix India Filings Say One Thing, the SEC Filings Another

Ebix's Indian subsidiary's filings and SEC filings tell the same story as far as how much was paid for Confirmnet (including earnouts) in 2008 and 2009. In 2010, however, they do not. They differ by at least $5 million, as shown in the below table23:

We are not sure which numbers are correct. Either the 10Ks are correct, the India filings are correct, or neither are correct. Just like the Singapore long-lived assets, however, the clear implication here is that the Ebix financial statements are not reliable, accurate, or complete.



  1. Ebix Singapore PTE LTD Report of the Directors and Financial Statements for the financial year ended 31 December 2010 and 31 December 2009; obtained via ACRA website:
  2. Ebix 2010 10K, 2011 10K, and Ebix Singapore PTE LTD Financial statements for 2010.
  3. Ebix Australia (VIC) Pty Ltd, Annual Financial Report for the Financial Year Ended 2011, 2010, and 2009, filed with the ASIC
  4. The South Asian Times, Vol. 5 | No. 37 | January 5-11, 2013
  5. Robin Raina Foundation IRS Form 990, 2004 - 2011
  6. Robin Raina Foundation IRS Form 990, 2004 - 2011

Ebix's Accounting: Unreliable, Inaccurate, and Incomplete

  1. Seeking Alpha, EBIX: Not a Chinese Fraud, But a House of Cards Nonetheless, Copperfield Research, March 22, 2011
  2. Ebix, Investor Conference CEO Presentation, April 1, 2011
  3. Greg Farrell, Bloomberg News, Ebix Accounting Practices Said to Be Probed by SEC, Nov 7, 2012
  4. Ebix press release, Ebix Responds to Bloomberg Article, Nov 5, 2012,
  5. Organic growth goes negative, recent 10Qs suggest past 10Qs were inaccurate If The SEC Cometh the SEC Will Findeth Or So We Suspect, , Copperfield Research, December 5, 2012, Prolonging a Foreign Tax Holiday by Bill Alpert of Barron's , July 17, 2011
  6. Prolonging a Foreign Tax Holiday by Bill Alpert of Barron's , July 17, 2011
  7. Anonymous Article Smells Like Market Manipulation At Its Finest, Jeff Van Rhee, Craig-Hallum, March 25, 2011
  8. Ebix Singapore PTE LTD Report of the Directors and Financial Statements for the financial year ended 31 December 2010 and 31 December 2009; obtained via ACRA website:
  9. From ACRA search
  10. Ebix Australia (VIC) Pty Ltd, Annual Financial Report for the Financial Year Ended 2011, 2010, and 2009, filed with the ASIC
  11. Ebix 2010 10K, and Ebix Australia (VIC) Pty Ltd, Annual Financial Report for the Financial Year Ended 2011
  12. Ebix 2011 10K, and Ebix Australia (VIC) Pty Ltd, Annual Financial Report for the Financial Year Ended 2011
  13. Isaac et al v. Ebix Inc, docket number 2:11-cv-00450, Consolidated class action docket number 1:11-CV-02400-RWS
  14. Financial Shenanigans, by Howard Schilit
  15. Do You Have a Handle on Your unbilled accounts receivables (a/r)? , by Dave Lundsten and Susan Moser, Partners with Cherry Bekaert Holland
  16. Ebix 10Q filings for Q4 2011, Q1 2012, Q2 2012, and Q 2012.
  17. From the 2007, 2008, and 2009 10Ks.
  18. From Email correspondences with Professor Ketz, January 29, 2013
  19. Ebix 2010 10K and 2011 10K ; the amended 2011 filings did not change long-lived assets
  20. Ebix 2010 10K, 2011 10K, and the Ebix Singapore PTE LTD Report of the Directors and Financial Statements for the financial year ended 31 December 2010.
  21. Ebix 2011 10K
  22. Ebix 2010 and 2011 10Ks
  23. Ebix 2008, 2009 and 2010 10Ks. Ebix Software India Private Limited 2008, 2009, and 2010 filings.

This Seeking Alpha article is a sneak preview of the full report found on our website:

We've included the 'Table of Content', 'Summary of Facts' and Summary of Opinions' of our full report below:

Table of Contents

  1. Summary
  2. Introduction
  3. Ebix's Accounting: Unreliable, Inaccurate, and Incomplete
  4. The Tax Strategy: Sham in Fact or Sham in Substance
  5. Ebix's Stock Deserves to be Halted
  6. Shares are Worth No More Than $5
  7. Robin Raina Foundation: a Crumbling Wall of False Integrity
  8. End Notes


  1. There is a $66 million undisclosed related party loan between Ebix Singapore and an unnamed related party.
  2. Australian revenues are only 32% of the amounts stated in the SEC filings, according to Australian filings.
  3. 2010 Singapore intangible assets are misstated by $67 million. 2011 long-lived assets do not add up.
  4. The 2010 & 2011 10K filings were filed before the Singapore 2010 financial statements were signed off.
  5. The Confirmnet acquisition cost 30% more according to the India filings than it did according to the SEC filings.
  6. Ebix could not have paid for Planetsoft, without moving cash from India, unless the cash never left the US.
  7. Less than 5% of Singapore's intangible assets are IP-related, i.e. most of the assets lack economic substance.
  8. EZ-Data's IP was transferred to Singapore yet Raina says "No US IP has been transferred to any other country."
  9. Ebix's Singapore and India subsidiaries' financial statements for 2011 remain unavailable.
  10. Core business is declining, tax rate is rising, and goodwill write-offs and debt maturities are looming.
  11. The Robin Raina Foundation's IRS filings are full of material accounting irregularities.
  12. Raina misrepresented his foundation's spending by 300+%


  1. Ebix will restate historical results - likely significantly - as a result of the issues covered in this report & elsewhere.
  2. Ebix stock should be halted until the financial statements are reliable, accurate, and complete.
  3. Cherry Bekaert Holland should not sign off on Ebix's 2012 financials, without Ebix Singapore's 2011 and 2012 filings.
  4. Ebix's stated tax strategy is supported by sham in fact and/or sham in substance transactions.
  5. Ebix shares are worth no more than $5.00/share, & approach $0.00 as the IRS, debt, & other risks unfold.

Disclosure: I am short EBIX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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