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I read enough of the Gotham report to conclude there is detail to the charges that could be checked out by someone who knows EBIX and knows more accounting than me. Any indication this has been done?

There has been some work done in the past day or two within TMF subscription services that have recommended Ebix. Without providing specific data that might compromise the pay wall, I think I can report that one TMF analyst found pre-tax profit margins greater than 100 percent for Ebix's foreign entities during the most recently reported three years running.

A profit margin of 100 percent, of course, means you sell something for $10 and the profit is $10. You have sold something that cost you nothing to produce or provide. This is quite a trick.

A profit margin greater than 100 percent generally requires extraneous, non-operational, one-time contributors. Sustained profit margins greater than 100 percent are odd and may confirm Gotham's charge that Ebix's geographic distribution of pre-tax profits is not consistent with the geographic distribution of its actual operations and revenues. In other words, it may be moving profits overseas in an effort to game the U.S. tax system. This might explain the $68.5 million "loan" to its Singapore sub that Gotham focused on.

Whether it's done anything illegal or improper, I have no idea. According to Bloomberg, a preliminary investigation by the SEC's Atlanta office is continuing. If you are into reading tea leaves, Ebix's response to the Gotham report seemed quite timid, claiming only that Ebix management "believes that to the best of its knowledge" all its reporting is kosher. The inclusion of the "to the best of its knowledge" caveat suggests a lawyer wanted an out in case management's belief turns out to be false.

Unless you are an accountant trained in the areas of serial acquisitions and foreign operations, I'm not sure how you would evaluate the current state of the risk/reward profile here. If the SEC finds reasons to proceed with a formal investigation, it may get worse before it gets better. If it doesn't, the stock price seems likely to recover at some point.
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