Why Ebix Shares Got Destroyed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ebix (NASDAQ: EBIX  ) got destroyed today, down by 26% at the low, after research firm Gotham City Research alleged the company's books are cooked.

So what: Gotham posted a lengthy short thesis saying the company's tax strategy is a "sham" and its accounting is "unreliable, inaccurate, and incomplete." The firm says shares should be halted in order for the SEC to investigate, and shares are worth "no more than $5." For example, Gotham alleges that Ebix failed to disclose a related-party loan of $65.8 million to a Singapore subsidiary.

Now what: This is very much a short attack. The disclaimer of the research report explicitly states that Gotham "stands to profit" if Ebix shares decline. Ebix has proven vulnerable to such attacks in the past, such as when Copperfield Research made a similar attack in March 2011. In November of last year, Bloomberg reported that Ebix was under investigation by the SEC, which the company said was entirely inaccurate. The allegations are worth exploring in more depth, but Ebix remains a popular victim of short attacks.

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Comments from our Foolish Readers

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  • Report this Comment On February 21, 2013, at 4:19 PM, griderX wrote:

    I find it quite shocking and disturbing a "nobody" can write something about a company and the stock gets thought is that there is "BIG Money" backing this "nobody" considering todays volume 3.4+ Million Shares!

  • Report this Comment On February 22, 2013, at 12:40 AM, midnightmoney wrote:

    I was surprised that the stock went down after the Bloomberg report back in November. But the fact is, ebix has done a poor job defending itself against these short attacks. They clearly need to do more than "vehemently" deny the claims. How bout Rob Raina lay the books open and run the world through them, sanction an audit as to the absolute legitimacy of the accounting and publish the results in a journal or newspaper. Then people would have a source to turn to that isn't Raina saying he vehemently denies the claims.

  • Report this Comment On February 22, 2013, at 9:56 AM, CelticDuck wrote:

    Every time I see a Fool article promoting this house of cards it shakes may faith... in Motley Fool.

  • Report this Comment On February 22, 2013, at 12:14 PM, SkepikI wrote:

    I actually read most of the Gotham report and quickly realized I was out of my depth to confirm or deny the details of the "attack" or perhaps INDICTMENT... There seems to me to be enough detail provided for someone who knows the business and knows accounting to at least give it a credible/incredible rating. The kind of material I see in the article above or in the commentary does not do this, accomplishing exactly nothing.

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