Shares of insurance software vendor Ebix (EBIX), formerly Delphi Information Systems, are down $4.32, or 23%, at $14.75, following a negative 46-page report this morning, posted online, by Gotham City Research LLC that claims that the company’s “accounting is Unreliable, Inaccurate, and Incomplete,” its “tax strategy is a sham,” and its stock “deserves to be Halted” until there’s clarity on its Securities & Exchange Commission filings.
Gotham posted the gist of their report on Seeking Alpha today, which of which the key summary is,
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 assets, and Australian revenues at a fraction of what the SEC filings disclosed, per the Australian filings. 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.
My colleague Bill Alpert wrote in Barron’s magazine print edition about Ebix way back in July of 2011 regarding the company’s suspiciously low tax rate as a result of its subsidiaries in Singapore and India:
The tax-savings from Ebix’s intracompany transactions with its subsidiaries in Singapore and India have been crucial to the cash flow and profit that Raina’s produced at the U.S. parent. There are many U.S. multinational firms that have been criticized for their use of international tactics to reduce their taxes�companies such as General Electric (GE) and this weekly’s publisher, News Corp. (NWSA). Still, Ebix merits attention. The solidly profitable software outfit’s effective tax rate in 2009 was 2.5%. In 2010 it was 1.1%.