Safkhet Capital has questioned the accuracy of Ebix’s financial statements, restating its short thesis on the India-focused payments company more than a year after writing to regulators to complain about potential accounting irregularities.
Safkhet, said on Monday that it is “extraordinarily difficult” to rely upon the financial reports released by Ebix, as evidenced by the long list of reporting deficiencies flagged by investors, journalists and even the company’s own auditors.
Last year in April, Safkhet sent a letter to the Public Company Accounting Oversight Board (PCAOB), which regulates the auditors of U.S.-listed companies, alleging that Ebix’s was inflating its payments business. This was done by reporting the total amount of money booked on its prepaid cards as its revenue, despite Ebix having merely intermediated the cash to endpoint merchants and collecting a roughly 1% fee.
After looking into the matter, the regulator last week issued an enforcement order against KG Somani, the auditor of EbixCash, one of the company’s key payments subsidiaries.
“We commend the PCAOB for its swift censure of KG Somani, an important first step in righting ship and protecting the interests of investors worldwide,” said the short seller Monday. The regulator found the auditor’s conduct was intentional and contained “repeated instances of negligent conduct, each resulting in a violation of the applicable statutory, regulatory or professional standard.”
The short outfit said Ebix should not be allowed to issue securities until a “thorough, independent, external investigation with regulatory oversight” is completed.
Despite Safkhet’s note, Ebix shares were up 2% at $14.65 each in midday trading Tuesday in New York.
Safkhet claims to have been short Ebix on several occasions since the firm’s inception in 2018. The hedge fund made its name after shorting German fintech Wirecard some years before the company became insolvent in June 2020. Safkhet is run by Fahmi Quadir, who previously worked at Krensavage Asset Management, where she played a pivotal role in successfully shorting Valeant Pharmaceuticals.
Ebix has a long history of being targeted by short sellers, former attackers including well-known outfits such as Viceroy Research and Hindenburg Research. The first was Gotham City Research, which in 2013 accused Ebix CEO Robin Raina of misleading investors about the group’s financials.