Why Ebix Shares Got Destroyed

Is this meaningful, or just another movement?

Evan Niu
Evan Niu, CFA
Feb 21, 2013 at 3:42PM
Technology and Telecom

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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