I just realized that someone had to have insider information in early June that the Goldman Sachs buyout was going to fail. Buyout announcement May 1 and the termination announcement June 19.
After the buyout announcement, the short interest dropped 1,375,155 shares and continued to drop slowly. Then the U.S. Attorney general in Atlanta sent a letter to the company on June 14 about an investigation. By then the short interest increased by 1,370,335 shares for no known reason and well before the public termination of the agreement On 6/19/2013.
Also, don't forget the huge put purchases proceeding the publication each Gotham article, sometimes purchased just a few minutes before the article's publication. You do not need to a proverbial brain surgeon to figure out that the short attack here was carefully coordinated and orchestrated with inside information and paid bashers who wrote baseless negative attacks on EBIX and coordinated the publication of these articles with others so that they could time their trades with the publication of these articles.
I looked at the volume to see where the possible start was to this short. Volume was low most of this June period. It had spiked on May 31 for no reason. Settled back down but was higher on several days. I figure that the average share price sold would have been around $19.75 based upon these higher volume days, 25 cents below the buyout price. At no time during this period, did the price rise above $19.86. If the buyout would have continued, there was no reason that I can think of to short at $19.75. I figure that they did short on May 31 and the time period afterwards while others were covering. Whoever that was could have shorted over 1.5 million shares or more above those who covered. If the buyout would have succeeded at $20, they could have lost has much as $400,000 to cover all costs, and even greater if there was a higher offer in the remaining go shop period. The buyout had to fail for them to gain on this short. Otherwise they would incur a loss since the price would certainly rise as the time to the buyout shortened.
The short's whistleblower to the U.S. Attorney General had to have told the short that the letter was being written and would soon be on its way (prior to May 31?). Their whistleblower has ties to the SEC, IRS, FBI, Department of Justice, and it looks like now to be at least one U.S. Attorney General's office.
Otherwise, does anyone here have an idea why anyone would short a buyout below the buyout price? I could see a short doing it above the buyout price but never below the buyout price unless they were very sure that the buyout would fail. If they used information obtained from the U.S. Attorney's office that would be illegal insider information. If they whistleblowed to manipulate a stocks price, again this would be illegal stock manipulation if falsely accused, it is intent to do harm and others have gone to jail for the same.
I hope Raina/Ebix hire expert private investigators to find the truth. Perhaps that is what Raina meant when he said they are going to get at the bottom of this. It is high time he follows up his words!
If a herculean effort to find something wrong with EBIX (by Danny Yu or GrumpOldAccountant) uncovers such flaws:
Absurdly low tax rates
Changing multiple auditors
Including deferred revenues in accounts receivable
EBIX not impairing its intangibles or estimated lives for purchased intangibles
EBIX self-insures for health insurance...
...then that makes me confident that none of the issues are severe enough to cripple. EBIX will weather the storm.
What I would like to see in a fraud is:
A product/service of no value or questionable value, no free cash flow generation, very high share/options compensation, attempt to stay under the radar. NONE of these apply to EBIX.
I have a hard time believing the US Attorney General telling the short "that the letter was being written and would soon be on its way." If you complain to anyone - SEC IRS FBI or DOJ - do they tell you in advance of them sending the letter or taking any sort of action? Why would they? Let's not forget all these are extremely secretive organizations and most companies who engage in wrongdoing don't even know they are under review until it's too late. Just my opinion.
Again, you could be totally right about that and it doesn't really matter at this point. For me, the fact is that EBIX has real customers, has generated real cash and will continue to generate real cash as customers really don't have an option to leave. I really do think the fines/lawsuits won't cripple EBIX - when was the last time the government crippled a company? Last I remember was Fortune Hi-Tech which was a pyramid Scheme. In that case, there were no "investigations" or "probes" - just one massive raid and the entire operation was dead in a blink.
EBIX could be guilty of not having the perfect accountants or of Raina low-balling his shareholders. But no crimes severe enough to force a shutdown or cause customers to leave. Fines will be paid, lawsuits will be settled and people will move on. It's not this criminal organization that shorts purport it to be.
From EBIX's presentation:
BPO services offered to 1,000 organizations across 26 different industries.
Risk Exchange servicing 450+ Customers within 40 Insurance Companies and a few hundred Risk Departments.
EBIX Advantage used by 69 Insurance companies across United States and Europe.
eGlobal deployed across 6 continents and 50 countries.
WINBEAT used by around 600 businesses and over 4,000 users Australia wide.
I do not necessarily agree with you. However, if you are correct then I would suggest based on your assertion it is not looking good for Ebix since the short interest has done nothing but increase since 06/28 (assuming the shorts are continuing to have access to inside information).
Well you're assuming that the person(s) who initiated/increased their short positions between the dates 5/31/2013 and 6/14/2013 are the same person(s) who have initiated/increased their short positions since 06/28.
It's entirely possible that the negative sentiment/technical indicators, etc (subjective opinions other than insider info based facts) have led to an increase in the short position.
You could be right...or wrong - it doesn't really matter at this point. What's very unlikely, at this point, is that they won't be caught.
I was just thinking about asking questions to the company:
1. Is dividend going to be re-instated?
2. Why do they prefer to repay their bank loans/debt when stock is so cheap? (as they did last quarter). Shouldn't more money be raised be raised to fund a bigger buyback?
3. Why aren't insiders buying EBIX at these prices?
4 Why are deferred revenues included in accounts receivable? The latter is money received for services not yet provided, latter is for money owed for services already provided.
5. Are they open to hiring a big firm for their audit/accounting and shore up investor confidence?
Any thoughts? I'm just going to email IR.