Just before a change in auditors sent Georgia-based Ebix’s stock prices tumbling, a shareholder connected to a company insider unloaded nearly $1 million in stock.
The transaction represented only a tiny fraction of the shareholder's total investment in the worldwide fintech company, which has its headquarters in Johns Creek. Still, the timing raises questions of insider trading, legal experts told The Atlanta Journal-Constitution.
Rennes Foundation, an entity based in Liechtenstein with a controlling interest in Ebix, sold 12,800 shares on Oct. 3. Rennes’ lead director, Zurich attorney Rolf Herter, sits on Ebix’s board of directors.
Two days later, on a Friday, the company announced it was changing auditors, from Virginia-based Cherry Bekaert to an Indian firm, T R Chadha & Co. According to a federally-required Form 8-K filed with the U.S. Securities and Exchange Commission, the decision was “necessitated by the company’s revenue and asset concentration in India for the year 2018.”
But the change shook confidence in a company that has weathered investigations in recent years by the SEC, the Internal Revenue Service and the U.S. Department of Justice. By the following Monday, Ebix stock dropped 20 percent — closing at $58 per share. Ebix’s share prices have yet to recover amid a global market slump, closing Monday at $48.66 per share.
Rennes, by selling for $77.20 per share ahead of the October announcement, appears to have avoided a potential loss of about $245,000, the AJC found.
“The timing is certainly suspicious,” said attorney David Chaiken, who spent nine years as a federal prosecutor for the Atlanta U.S. Attorney’s office and now works in white collar and government investigations for Troutman Sanders. “A quarter of a million dollars is going to catch a prosecutor’s eye, definitely, or an SEC enforcement attorney.”
Herter told the AJC by email that Rennes Foundation was not aware of the pending auditor announcement at the time of the stock transaction. While he is on the Ebix board, he said he played no role in either the auditor switch or selling stocks.
“The change of auditors or for that matter any auditor related discussions are handled by the audit committee and I am not an audit committee member,” Herter said. “Also any Rennes’ decisions to sell/purchase at any given time are not made by myself.”
Herter said that Rennes is “a discretionary family foundation and an independent investor in Ebix.”
“Rennes sold shares of Ebix for certain uses of cash which had nothing to do with Rennes’ levels of faith in Ebix’s fundamentals,” Herter said in an email.
Ebix, once listed as one of the fastest-growing companies by Fortune magazine, sells software and e-commerce services to the insurance, financial, healthcare and e-learning industries. Most of its operations are in India, as are the majority of its 4,500 employees. Ebix is what's known as a rollup — a company that grows by acquiring and merging smaller companies.
A third-quarter report last year, the most recent available, reported year-to-date revenues of $361.5 million, a 39 percent increase over 2017’s figure.
The company did not respond to a request from the AJC to interview its CEO, Robin Raina, nor did the company respond to questions in writing.
For years, Ebix has been under attack by short sellers — investors who bet on a company’s stock prices to fall. The AJC learned of Rennes Foundation’s October stock sale from short seller Viceroy Research, which publishes online documents questioning the financial stability and practices of publicly-traded companies.
The AJC’s independent reporting, however, found the October stock sale to be problematic.
“If I’m the prosecutor, I would definitely make that argument that they’re changing auditors, that’s a material change, that could affect the stock price,” said Jessica Cino, a Georgia State University law school professor and former white collar criminal defense attorney. “And given the backdrop of prior accounting issues, yeah, you should know better.”
Viceroy Research’s past targets have included Atlanta-based MiMedx and South Africa’s Steinhoff International. Since December, Viceroy has published four reports on Ebix, accusing it of a debt-fueled acquisition binge, misleading press releases, shuffling assets between subsidiaries and an opaque subsidiary structure, among other things.
Short sellers also circled the company in recent years amid shareholder lawsuits and reports of federal investigations. In 2013, Goldman Sachs backed out of an $820 million buyout deal after Ebix received a letter from the Atlanta U.S. Attorney's office about an investigation into allegations of intentional misconduct, a probe which apparently fizzled.
An independent stock analyst, however, said he has investigated short sellers’ claims about Ebix — even traveling to India and interviewing ex-employees, accountants, attorneys and competitors — and he’s advising clients to invest in the company, forecasting stocks to rise as high as $110 per share by year’s end.
In a report released last week, Jeff Van Rhee of Craig-Hallum Capital Group noted that the company has survived scrutiny from the SEC and the IRS in the past.
“As we have watched the activist-short claims evolve,” Van Rhee’s report says, “and compared them to the performance and claims of management, credibility has accrued in a very lopsided manner in favor of management.”
In recent months, Ebix has made moves to reassure shareholders as stock prices have dropped and shorts have pounced.
Late last month it announced RSM US, the fifth-largest accounting firm in the U.S., will be its new auditor for 2019. CEO Raina has agreed to forego his salary, instead receiving the equivalent in stock options, until stocks reach $150 per share. Since October, Ebix has repurchased more than one million shares for $49.6 million, including 200,000 shares bought from Rennes Foundation.
Rennes still remains a 10 percent shareholder, holding more than 3.2 million shares in Ebix, according to a public disclosure.
