“Ebix” June 30, 2011 (the “...

Case 1:11-cv-02400-RWS Document 1 Filed 07/21/11 of 79

UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

DAN ANGHEL, individually and on Civil Action No._________________Behalf of All others similarly situated,

Plaintiff, COMPLAINT FOR VIOLATIONSv. OF THE FEDERAL SECURITIES

LAWSEBIX, INC., ROBIN RAINA, andROBERT KERRIS

JURY TRIAL DEMANDED

Defendants.

INTRODUCTION

1. This is a securities class action on behalf of all persons who purchased

or otherwise acquired the common stock of Ebix, Inc. ( “Ebix” or the “Company”)

between May 6, 2009 and June 30, 2011 (the “Class Period”), inclusive, against

Ebix and certain of its officers and/or directors for violations of the Securities and

Exchange Act of 1934 ( the “ 1934 Act”) . Ebix and certain of its officers and/or

directors made materially false and misleading statements during the Class Period

in press releases, analyst conference calls, and filing with the U.S. Securities and

Exchange Commission (“SEC”).

1


2. Ebix is a supplier of software and e-commerce solutions to the

insurance industry, providing that industry with carrier systems, agency systems

and exchanges. The Company also purports to develop custom software for the

insurance and financial industries. Ebix is a “rollup,” purchasing many smaller,

related software companies in an attempt to create economies of scale and reduce

costs.

3. Throughout the Class Period, Ebix portrayed itself as a fast-growing

leader in its industry. It announced ever-increasing revenues and net income,

bolstered by its torrid pace of acquisitions and extremely favorable tax situation

which lowered its effective tax rate into the single digits. As a result of its

unabashedly positive outlook, during the Class Period, Ebix common stock traded

at artificially inflated prices, reaching a high of $30.35 per share on March 24,

2011.

4. On March 24, 2011, however, the truth began to seep into the market.

Analysis from Seeking Alpha, as carried by Bloomberg, detailed myriad problems

at Ebix, problems defendants had concealed, including:

(a) The Company’s internal controls were wholly inadequate in the

face of its torrid acquisition pace. The Company was unable to prepare materially

accurate financial statements for its acquisitions or on a consolidated basis.

2


(b) The Company’s growth was due in large part to its acquisitions.

Organic growth was slow with the majority of the Company’s increased revenues

coming from contracts the Company purchased. Defendants’ statements about

organic growth were misleading in that they mischaracterized purchased contracts

as “organic.”

(c) The Company’s tax provisions violated generally accepted

accounting principles (“GAAP”); and

(d) Defendants materially and improperly inflated the Company’s

cash flows and gross margins.

5. On this news, Ebix share price plummeted 25.8% from a March 24,

2011 intraday, class period high 30.35 to close that day at $22.52 per share on

heavy volume of nearly 15 million shares traded.

6. In addition, on June 30, 2011, it was disclosed that former shareholder

of a company Ebix had purchased in 2009 had sued the Company, claiming that

after Ebix purchased its accounting systems and mismanagement had prevented it

from accurately accounting for an earn-out owed and from paying certain

receivables the former shareholders retained upon sale. Essentially, the allegations

in that complaint confirmed several of the points raised in the Seeking Alpha

analysis on March 24, 2011.

3


7. On this news, the stock price fell 9% from an intraday high of $20.93

on June 30, 2011 to close that day at $19.05 on heavy volume of over 5 million

shares traded. As a direct result of defendants’ wrongful acts and omissions,

plaintiff and the members of the class have suffered significant losses and

damages.

JURISDICTION AND VENUE

8. Jurisdiction is conferred by §27 of the 1934 Act. The claims asserted

herein arise under §§10(b) and 20(a) of the 1934 Act, 15 U.S.C. §§ 78j(b) and

78t(a), and SEC Rule 10b-5, 17 C.F. R. §240.10b-5.

9. Venue is proper in this District pursuant to §27 of the 1934 Act. The

violations of law complained of herein occurred in part in the District, including

the dissemination of materially false and misleading statements complained of

herein into this District. EBIX’s principal executive offices are located at 5

Concourse Parkway, Suite 3200, Atlanta, Georgia.

10. In connection with the acts alleged in this Complaint, defendants,

directly or indirectly, used the means and instrumentalities of interstate commerce,

including, but not limited to, the mails, interstate telephone communications and

the facilities of the national securities markets. EBIX’s stock trades in an efficient

market on the NASDAQ Global Market.

4


THE PARTIES

11. Plaintiff Dan Anghel (“Plaintiff”) purchased EBIX common stock

during the Class Period as described in the attached certification and was damaged

thereby.

12. Defendant EBIX is a Delaware corporation, headquartered at 5

Concourse Parkway, Suite 3200, Atlanta, Georgia. As stated above, EBIX is a

supplier of software and e-commerce solutions to the insurance industry, providing

that industry with carrier systems, agency systems and exchanges. The Company

also purports to develop custom software for the insurance and financial industries.

13. Defendant Robin Raina (“Raina”) was, at all times relevant hereto, the

Chief Executive Officer of EBIX. Appended to each periodic filing with the SEC

during the Class Period, including annual reports and quarterly reports, the

Company appended Raina’s certification, attesting to the accuracy of the

Company’s financial statements. The following, filed with the SEC on May 10,

2011, is representative of that certification:

I, Robin Rai na, certify that:

1. I have reviewed this quarterly report on Form 10-Q ofEbix, Inc.;

2. Based on my knowledge, this report does not containany untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in

5


light of the circumstances under which such statementswere made, not misleading with respect to the periodcovered by this report;

3. Based on my knowledge, the financial statements, andother financial information included in this report, fairlypresent in all material respects the financial condition,results of operations and cash flows of the registrant asof, and for, the periods presented in this report;

4. The registrant's other certifying officer and I areresponsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) for the registrant andhave:

(a) Designed such disclosure controls andprocedures, or caused such disclosure controls andprocedures to be designed under our supervision, toensure that material information relating to the registrant,including its consolidated subsidiaries, is made known tous by others within those entities, particularly during theperiod in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant'sdisclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation;and

(c) Disclosed in this report any change in theregistrant's internal control over financial reporting thatoccurred during the registrant's most recent fiscal quarter(the registrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or isreasonably likely to materially affect, the registrant'sinternal control over financial reporting; and

6


5. The registrant's other certifying officer and I havedisclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant'sauditors and the audit committee of the registrant's boardof directors (or persons performing the equivalentfunctions):

(a) All significant deficiencies and materialweaknesses in the design or operation of internal controlover financial reporting which are reasonably likely toadversely affect the registrant's ability to record, process,summarize and report financial information; and

(b) Any fraud, whether or not material, thatinvolves management or other employees who have asignificant role in the registrant's internal control overfinancial reporting.

14. Defendant Robert Kerris (“Kerris”) was, at all times relevant hereto,

the Chief Financial Officer of EB IX . Appended to each periodic filing with the

SEC during the Class Period, including annual reports and quarterly reports, the

Company appended Kerris’s certification, attesting to the accuracy of the

Company’s financial statements. The following, filed with the SEC on May 10,

2011, is representative of that certification:

I, Robert Kerris, certify that:

1. I have reviewed this quarterly report on Form 10-Q ofEbix, Inc.;

2. Based on my knowledge, this report does not containany untrue statement of a material fact or omit to state a

7


material fact necessary to make the statements made, inlight of the circumstances under which such statementswere made, not misleading with respect to the periodcovered by this report;

3. Based on my knowledge, the financial statements, andother financial information included in this report, fairlypresent in all material respects the financial condition,results of operations and cash flows of the registrant asof, and for, the periods presented in this report;

4. The registrant's other certifying officer and I areresponsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) for the registrant andhave:

(a) Designed such disclosure controls andprocedures, or caused such disclosure controls andprocedures to be designed under our supervision, toensure that material information relating to the registrant,including its consolidated subsidiaries, is made known tous by others within those entities, particularly during theperiod in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant'sdisclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation;and

(c) Disclosed in this report any change in theregistrant's internal control over financial reporting thatoccurred during the registrant's most recent fiscal quarter(the registrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or is

8


reasonably likely to materially affect, the registrant'sinternal control over financial reporting; and

5. The registrant's other certifying officer and I havedisclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant'sauditors and the audit committee of the registrant's boardof directors (or persons performing the equivalentfunctions):

(a) All significant deficiencies and materialweaknesses in the design or operation of internal controlover financial reporting which are reasonably likely toadversely affect the registrant's ability to record, process,summarize and report financial information; and

(b) Any fraud, whether or not material, thatinvolves management or other employees who have asignificant role in the registrant's internal control overfinancial reporting.

15. In addition, both Rai na and Kerris certified each financial result

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1350,

stating:

In connection with the Quarterly Report on Form 10-Q ofEbix, Inc. (the “Company”) for the period endedMarch 31, 2008 as filed with the Securities and ExchangeCommission on the date hereof (the “Report”), I, RobinRai na, Chief Executive Officer of the Company, certify,pursuant to 18 U.S.C. 1350, as adopted pursuant to 906of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of1934; and

9


2. The information contained in the Report fairlypresents, in all material respects, the financial conditionand results of operations of the Company.

16. Defendants Raina and Kerris (the “Individual Defendants”), because

of their positions with the Company, possessed the power and authority to control

the contents of EBIX’s quarterly reports, press releases and presentations to

securities analysts, money and portfolio managers and institutional and individual

investors, i.e., the market. They were provided with copies of the Company’s

reports and press releases alleged herein to be misleading prior to or shortly after

their issuance and had the ability and opportunity to prevent their issuance or cause

them to be corrected. Because of their positions with the Company, and their

access to material non-public information available to them but not to the public,

the Individual Defendants knew that the adverse facts specified herein had not

been disclosed to and were being concealed from the public and that the positive

representations being made were then materially false and misleading. The

Individual Defendants are liable for the false statements pleaded herein.

FRAUDULENT SCHEME AND COURSE OF BUSINESS

17. Defendants are liable for: (i) making false statements of material fact;

or (ii) failing to disclose adverse material facts known to them about EB IX .

Defendants’ fraudulent scheme and course of business that operated as a fraud or

10


deceit on purchasers of EBIX common stock was a success, as it: (i) deceived the

investing public regarding the financial results, prospects and operations of EB IX;

(i i) artificially inflated the prices of EB IX common stock; and (i i i) caused Plaintiff

and other members of the Class to purchase EB IX common stock at inflated prices

and suffer economic loss when the revelations set forth herein reached the market.

CLASS ACTION ALLEGATIONS

18. Plaintiff brings this action as a class action pursuant to Rule 23 of the

Federal Rules of Civil Procedure on behalf of all persons who purchased or

otherwise acquired EBIX common stock during the Class Period between May 6,

2009 and June 30, 2011, inclusive and suffered damages thereby (the “Class”).

Excluded from the Class are defendants and their families, the officers and

directors of the Company, at all relevant times, members of their immediate

families and their legal representatives, heirs, successors, or assigns and any entity

in which defendants have or had a controlling interest.

19. The members of the Class are so numerous that joinder of all

members is impracticable. The disposition of their claims in a class action will

provide substantial benefits to the parties and the Court. As of March 14, 2011,

EBIX had 39,708,750 shares of commons stock issued and outstanding, owned by

hundreds if not thousands of persons.

11


20. There is a well-defined community of interest in the questions of law

and fact involved in this case. Questions of law and fact common to the members

of the Class which predominate over questions which may affect individual Class

members include:

(a) Whether the 1934 Act was violated by defendants;

(b) Whether defendants omitted and/or misrepresented material

facts;

(c) Whether defendants') statements omitted material facts

necessary to make the statements made, in light of the circumstances under which

they were made, not misleading;

(d) Whether defendants knew or recklessly disregarded that their

statements were false and misleading;

(e) Whether the price of EBIX common stock was artificially

inflated; and

(f) The extent of damage sustained by Class members and the

appropriate measure of damages.

21. Plaintiff's claims are typical of those of the Class because plaintiff and

the Class sustained damages from defendants’ wrongful conduct.

12


22. Plaintiff will adequately protect the interests of the Class and has

retained counsel who are experienced in class action securities litigation. Plaintiff

has no interests which conflict with those of the Class.

23. A class action is superior to other available methods for the fair and

efficient adjudication of this controversy.

BACKGROUND

24. Ebix bills itself as “a leading international supplier of software and e-

commerce solutions to the insurance industry.” 1 In its stable of software solutions,

Ebix “provides a series of application software products for the insurance industry

ranging from carrier systems, agency systems and exchanges to custom software

development for all entities involved in the insurance and financial industries. ”2

The Company’s growth was spurred by the insurance industry’s “ desire to reduce

paper based processes and improve efficiency both at the back-end side and also at

the consumer end side.” According to the Company,

Management believes the insurance industry willcontinue to experience significant change and increasedefficiencies through online exchanges and reduced paperbased processes are becoming increasingly a norm acrossthe world insurance markets. Changes in the insuranceindustry are likely to create new opportunities for theCompany. 3

1 Quarterly Report on Form 10-Q, filed with the SEC on May 8, 2009, at 16.2 Id.

3 Id.

13


25. The Company claimed to be expanding “both internally as well as

through a series of acquisitions.” 4 As of the start of the Class Period, Ebix was

growing at a fast pace, but overwhelmingly through acquisitions. In 2008 alone,

EB IX acquired Confi rmNet Corporation, Acclamation Systems, Inc., Pericul um

Services Group and Telestra eBusi ness Services. For these acquisitions, Ebix paid

total cash consideration of over $74 million in cash plus additional payments based

on revenues from EBIX received from certain of the companies it purchased. 5

26. As the Class Period began, the Company’s internal controls could not

keep pace with its robust growth-by-acquisition. This would ultimately lead to the

inability of the Company to record and disclose accurate financial statements to

investors. More, the Company’s growth was fueled by acquisition while “organic”

or internal growth was not nearly as robust as defendants would lead investors to

expect.

DEFENDANTS' FALSE AND MISLEADINGSTATEMENTS ISSUED DURING THE CLASS PERIOD

27. On M ay 6, 2009, the first day of the Class Period, EB IX issued a press

release, disclosing it financial results for the first quarter of 2009, ended M arch 31,

2009. Ebix recorded first quarter 2009 revenue of $20.67 million up from $16.64

4 Id. at 17.

5 See id.

14


million for the same quarter in 2008, a 24% increase. The Company further

recorded operating income of $8.36 million ($8.531 million total income before

income taxes) up from $6.14 million in 2008. According to the Company, “Net

income after taxes for the quarter rose 47 percent to $8.34 million, or $0.69 per

diluted share, up from $5.67 million, or $0.47 per diluted share, in the first quarter

of 2008 -- earnings per share growth of 47 percent.” The Company recorded an

income tax provision of $196,000, indicating an effective tax rate of 2.3%.

28. Of these results, defendant Rai na stated in the May 6 press release:

I am especially pleased that our net margins grew to 40percent in the first quarter of 2009 as compared to 34percent in the first quarter of 2008. That is the highestnet margin reported by the company in its 33-year younghistory.

The current economic environment has made thingsharder for any company and we are no exception to that.The insurance industry worldwide has been hit severelyby the present economic crisis, and new capital expensedecisions are either being delayed or just being put intocold storage. To add to that, the US [dollar] hasstrengthened by approximately 30 percent in the firstquarter of 2009 as compared to the first quarter of 2008,having an obvious adverse effect on our revenues and netincome numbers.

Considering all that, this has been a satisfying quarter tothe extent, that it helps underline the fundamentalstrength of the company today. Our repetitive revenuestreams and infrastructure based transaction services,

15


helped ensure that Ebix continues to grow its revenues,net income and net margins steadily.

In January 2009, we had announced that Ebix hasreceived a 100% tax-free status till 2014, for its newdevelopment operations in India under the SoftwareExport Zone (SEZ) act of the Govt. of India. This newbuilding -- our third in India will be fully functional in afew days from now, resulting in giving Ebix a continuedtax break along with another world class facility tosupport our continued growth.

29. In the May 6, 2009 press release, K erris added:

During the 1 st quarter of 2009 we generated $7.8 millionof net cash flows from operations which represents a116% or $4.2 million improvement over the same quarterof 2008. The Company also sustained profitable growthas demonstrated by our reported 1 st quarter operatingmargin of 40.4%. Both of these positive performancemetrics are salient examples of Ebix's operatingresiliency irrespective of the challenging industryspecific and broader economic environments in which theCompany conducts its operations. During 2009 our focuswill be to improve the financial position of the Companyusing available cash and recurring cash flows generatedfrom operations to significantly reduce debt.

30. On May 6, 2009, the Company convened an “Earnings Conference

Call,” that defendants Raina and K erris conducted. During his presentation, Raina

stated:

So, how do we at Ebix, or I personally, perceive theseresults? From my perspective, these results are justanother step forward. As the CEO of this company, I seemy role as creating sustained, long term shareholder

16


value. Towards that extent, this quarter is another smal lstep forward. My belief is that long term shareholdervalue can only be sustained if our business has a few keyelements. One, we need to fulfill a business need in amanner that makes us almost the engine that powersfulfillment of that need. I n other words, our goal is to bean infrastructure player worldwide rather than being aservices or software product company.

I could draw a simile with the airline industry toemphasize my point. When you take a flight to anydestination, you can choose what airline to fly by. But,you do not necessarily choose what airport to fly by, asmost of the time that's considered a given. Nine yearsback, Ebix embarked on the journey to be an airport,rather than be an airline. And today, we remain focusedon continuing to establish such airports around the world.

A second key element in our viewpoint is that ourrevenue stream needs to be as recurring as possible.I deal ly, upwards of 90%. This goal is rather linked to thefirst goal. I f we are an airport, or in simple parlance, aninfrastructure player, then recurring revenue will flow byitself. Again, we have work to do before we can get tothat mark of 90%.

Thirdly, our margins need to be consistently higher than37%. Towards that extent, we need to watch our costsrather carefully and balance that cost pressure with theright amount of investment in the future so that we arecontinuously investing in the future without taking hugerisks.

Fourthly we need to keep investing in innovation. Weneed to take our competition seriously and need to keepmaking consistent efforts to be a few years ahead of ourcompetition in terms of technology, depth offunctionality, as also in terms of how we provide these

17


services. This goal is more of a journey rather than adestination.

Lastly, the insurance markets worldwide are fragmented,disjointed, and need increased standardization in terms ofservice offerings. That is a rather difficult goal tostandardize, but in my viewpoint a huge opportunity.The fact remains that there is no one dominant player inthe insurance services market worldwide, or for thatmatter in the United States. That is an opportunity thatEbix needs to go after by positioning itself as a playerthat can offer a wide range of services to the insurancemarket under one roof, while converting services,regions, and channels in insurance.

When I look at these five goals and evaluate Ebix today,it's a rather humbling feeling as I realize that we have along way to go and that we're just getting started. Thegood news from my perspective is that we realize howfar we need to go, and that we have made a rather goodstart.

So what is next? We're looking to expand our exchangeofferings, make a few acquisitions in the exchange area,in specific geographies, get into claims inquiry, billinginquiry, increase our presence in the life and healthmarkets, expand ourselves further into emergingeconomies like China and India. All of these are goodopportunities, and we intend to pursue them. Whiledoing all this, we are continually strengthening ourresource base around the world, in addition to designingnewer cutting-edge products and services that can keepus a few years ahead of our competition.

18


31. In addition, during the question an answer portion of the earnings

conference call, Raina had an exchange with a participating analyst over the health

of the Company’s organic growth as follows:

UNIDENTIFIED PARTICIPANT: Hey, good morning,this is actually Brian. I wonder if you could just talkabout your revenue opportunities over the next say, threeto five years, and if you could break that down and youknow ---- if you did make another acquisition, what's yourorganic growth potential? And then, additionally, maybeseparately talk about those acquisition opportunities, andwhat's a realistic target that management might have, orwith that same time frame? That's my first question.

ROBIN RAINA: Well I think, first of all, is the revenueopportunity. If we're discussing opportunity, I mean, we---- the market size is almost $59 billion meaning in termsof just the amount that you are spending on paper-basedprocesses of insurance alone. So, clearly to me that isopportunity. Now, what can Ebix do in that? And I don't---- I hate to answer that because I don't want to be issuingany guidance on revenues.

Having said that, I think we have consistently grown ourrevenue. Meaning, if you go to our website you'll see aparticular presentation there, which walks you throughsome of the organic growth rate last year. And once youtake out all that commission, you'll see it's a 22, 23, Ithink it's 27% actually. The organic growth rate. So, it's---- we have done decently well with cross-selling. In atime like this when new capital decisions are harder tocome by, we have continued cross selling and using --launching new products and opening up new areas, andso on, and so that has kept our revenue growing.

19


And clearly, we will make a few acquisitions, andcoming back to the second question on acquisitions, weclearly will make a few acquisitions. You could see usmake possibly, you will ---- you could see us go after twokinds of companies. One are relatively smalleracquisitions, a kind of acquisition we have made in thepast, which tend to be, have to -- have always beenaccretive. We have never made an acquisition that wasnot accretive on day one. And then there is, there arelarger opportunities. You could possibly see us goingafter some larger acquisitions, but the only case in whichwe'll go after a larger acquisition is only if we see a slam-dunk situation.

I f we see our ---- this has the next big life changing step forus, then only we'll go after that. And clearly, even whenwe do that, we are very simplistic in that approach. Weexpect accretiveness on day one, rather than as a longterm objective. So, our staff always become harder whenwe are looking at acquisitions, because we're almosttrying to make an acquisition with accretiveness in thefirst quarter. And that's been our history, and we feelthat's the benchmark we're getting evaluated by, and wewant to stick to that.

32. On M ay 8, 2009, the Company filed a Quarterly Report on Form 10-Q

for the quarter ended M arch 31, 2009 signed by defendants Rai na and K erris. I n

that Form 10-Q, Defendants reiterated the Company’s results from the May 6,

2009 press release. I n addition, as stated above, both Rai na and K erris certified the

Company’s financial results for the first quarter of 2009, ended March 31, 2009.

20


33. Also in that Form 10-Q, Defendants discussed their evaluation of

internal control over financial reporting and their evaluation of disclosure controls

and procedures, stating:

Evaluation of Disclosure Controls and Procedures. Asrequired by Rule 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, an evaluation wascarried out under the supervision and with theparticipation of our management, including the ChiefExecutive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of ourdisclosure controls and procedures as of March 31, 2009.Based upon this evaluation, our Chief Executive Officerand Chief Financial Officer have concluded that, as ofMarch 31, 2009, our disclosure controls and procedureswere effective to provide reasonable assurance thatinformation required to be disclosed in the reports thatwe file or submit under the Securities Exchange Act of1934 is accurately and properly recorded, processed,summarized and reported within the time periodsspecified in the applicable rules and forms and that it isaccumulated and communicated to our management,including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

Internal Control over Financial Reporting. There wereno changes in our internal control over financialreporting during the fiscal quarter ended March 31, 2009,that have materially affected, or are reasonably likely tomaterially affect, our internal control over financialreporting.

34. The foregoing statements were false or misleading. Defendants

knew or recklessly disregarded that Ebix was not growing organically. Rather

21


defendants knowingly or recklessly distorted its growth profile, manipulating the

definition of organic growth which was negative during the Class Period. Further,

in violation of GAA P, Ebix manipulated tax strategy through a series of superficial

transactions that had no business purpose other than to avoid U.S. taxes. By

engaging in these sham transactions, the Company enhanced foreign profits by

40% without disclosing the unsustai nabi l ity of its practices or that it would

ultimately be forced to pay a far higher tax rate. In turn, its earnings should have

and will suffer. The Company artificially inflated its cash flows. Last, Ebix is

unable to maintain adequate accounting controls over many companies it has

purchased both during and before the Class Period. Because it cut critical

accounting staff and imposed its own, inadequate controls over its acquisitions, the

Company was unable to engage in critical functions like reconciling customer

accounts and collecting accounts receivable. By virtue of its lack of internal

controls, the Company’s financial statements are wholly unreliable. As such, the

financial statements it released were materially false and misleading.

35. On August 5, 2009, the Company issued a press release, detailing its

financial and operating condition for the second quarter of 2009, ended June 30,

2009. Ebix recorded second quarter 2009 revenue of $22.42 million up 26% from

$17.80 million for the same quarter in 2008. The Company further recorded

22


operating income of $9.26 million ($9.372 million total income before income

taxes) up from $6.91 million in 2008, a 34% increase. According to the Company,

“Net income after taxes for the quarter rose 41 percent to $8.96 million, or $0.73

per diluted share, up from $6.34 million, or $0.54 per diluted share, in the second

quarter of 2008 -- an earnings per share growth of 35 percent.” The Company

recorded an income tax provision of $416,000, indicating an effective tax rate of

4.4%.

36. About these results, defendant Raina stated in the August 5 press

release:

We are pleased that the second quarter results are in linewith our expectations. The insurance industry continuesto pass through a difficult phase with capital decisionsrelated to deployment of backend systems beingpostponed or just being put into cold storage for want ofbudget or focus. Considering that inertia, and the adverseimpact of the significant strengthening of the US dollaron our financial results in the second quarter of 2009 ascompared to the second quarter of 2008 (as much as 15%with respect to Indian Rupee, 20% with respect toAustralian dollar, 22% with respect to New Zealanddollar, and 7% with respect to Singapore dollar); we arepleased that our revenues and net income both have stillcontinued to grow. The current times have been a goodtest of our infrastructure-based On-Demand softwareexchanges, our recurring revenue model, and the expanseof our customer base.

We are especially pleased that net margins after taxes inthe second quarter grew to 40% from 36% in the same

23


quarter last year. The exchange and BPO channelscontinued to grow in a healthy manner and more thanmade up for the slight decrease in revenues associatedwith postponed implementations and delayed decisionmaking relating to back-end systems that took place inthe broker and carrier channels. The second quarter sawthe exchange channel become 59% of our total revenueswhile the BPO channel accounted for 16% of ourrevenues. Broker systems business accounted for 13%and the carrier channel accounted for 12% of ourworldwide revenues.

37. Also in the August 5, 2009 press release, defendant K erris stated:

The Company continues to produce substantial cash fromits operating activities generating $15.54 million duringthe six months ending June 30, 2009 representing a 46%improvement over the same period in 2008, while at thesame time sustaining attractive operating margins of 41 %for both the second quarter and six-month periods of2009, both improvements in our performance since 2008.

38. On August 7, 2009, the Company filed a Quarterly Report on Form

10-Q for the quarter ended June 30, 2009 signed by defendants Rai na and K erris.

I n that Form 10-Q, Defendants reiterated the Company’s results from the August 5,


Company’s financial results for the second quarter of 2009, ended June 30, 2009.

39. In that Form 10-Q, the company boasted of its continued expansion,

“both organically and through a series of acquisitions. . . .” Indeed, during the

second quarter of 2009, the Company acquired Facts Services, I nc. for $6.5 million

24


in cash, combining it with its EbixHealth division. The reported results from the

second quarter of 2009 included those of Facts Services, Inc.




Evaluation of Disclosure Controls and Procedures—Asrequired by Rule 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, an evaluation wascarried out under the supervision and with theparticipation of our management, including the ChiefExecutive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of ourdisclosure controls and procedures as of June 30, 2009.Based upon this evaluation, our Chief Executive Officerand Chief Financial Officer have concluded that, as ofJune 30, 2009, our disclosure controls and procedureswere effective to provide reasonable assurance thatinformation required to be disclosed in the reports thatwe file or submit under the Securities Exchange Act of1934 is accurately and properly recorded, processed,summarized and reported within the time periodsspecified in the applicable rules and forms and that it isaccumulated and communicated to our management,including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

Internal Control over Financial Reporting—There wereno changes in our internal control over financialreporting during the six months ended June 30, 2009, thathave materially affected, or are reasonably likely tomaterially affect, our internal control over financialreporting.

25


41. The foregoing statements were false or misleading. Defendants knew

or recklessly disregarded that Ebix was not growing organically. Rather









unable to maintain adequate accounting controls over many of the companies it has







42. On November 4, 2009, EB IX issued a press release, disclosing it

financial results for the third quarter of 2009, ended September 30, 2009. Ebix

26


recorded third quarter 2009 revenue of $23.29 million up 16% from $20.17 million

for the same quarter in 2008. The Company further recorded operating income of

$9.78 million ($9.747 million total income before income taxes) up from $8.12

million in 2008, a 21% increase. According to the Company, “Net income after

taxes for the quarter rose 28 percent to $9.43 million, or $0.76 per diluted share, up

from $7.40 million, or $0.62 per diluted share, in the third quarter of 2008-

earnings per share growth of 22 percent.” The Company recorded an income tax

provision of $313,000, indicating an effective tax rate of 3.2%.

43. Of these results, defendant Raina stated in the November 4 press

release:

We are pleased that the third quarter results are in linewith our expectations. We are especially pleased that netmargins after taxes in the third quarter grew to 41 % from37% in the same quarter last year. We feel good aboutour consistent revenue streams and believe that thecompany has the ability to continue our growth bothorganically and through strategic acquisitions.

These are both very strategic acquisitions that allow uscross selling opportunities, as also help us take a giantleap forward in terms of making the dream of end-to-endcomputing possible. We intend integrating them withinEbix on a war footing and in the most sensible fashionwith the aim of leading the industry, accompanied byshort term and long term accretiveness for ourshareholders.

27


In recent times, we have been repeatedly asked byinvestors, for some guidance on the impact of EZDATAand Peak on our financial results. Clearly we remainfocused on getting the same level of net margins fromthese two deals, as we are used to today. While we arenot yet fully prepared to discuss the complete positiveimpact of the EZ Data and Peak acquisitions on ourresults, yet we feel comfortable enough to define somefloor metrics in terms of revenues and net income fromthese acquisitions. We expect the two deals to contributea combined minimum of $26 million in revenues and$7.5 million in net income, over the next 12 months.

44. Also in the November 4 press release, defendant Kerris added:

During nine months ending September 30, 2009 theCompany generated $22.1 million from our operatingactivities which represents a 14% improvement over thesame period a year earlier. Net income for the thirdquarter of $9.43 million is up $483 thousand or 5% fromthe second quarter, representing the thirteenthconsecutive quarter of sequential quarter over quarter netincome growth. Our operating margins remain strong at42% for the quarter and 41% the nine-month periodending September 30, 2009, respectively. We are alsopleased by the fact that to date $26.6 million of theoriginal $35.0 million of convertible debt issued during2007 and 2008 has been paid or converted into Ebixcommon stock, leaving a remaining balance due on thoseobligations of $8.4 million.

45. On November 9, 2009, the Company filed a Quarterly Report on

Form 10-Q for the quarter ended September 30, 2009 signed by defendants Raina

and Kerris. In that Form 10-Q, Defendants reiterated the Company’s results from

the November 4, 2009 press release. In addition, as stated above, both Raina and

28


Kerris certified the Company’s financial results for the third quarter of 2009, ended

September 30, 2009.

46. In that Form 10-Q, the company boasted of increased revenues,

stating, “During the nine months ended September 30, 2009 our operating revenue

increased $11.8 million or 21.6%, to $66.4 million in 2009 compared to $54.6

million during the same period in 2008. This revenue increase is a result of both

the impact of strategic business acquisitions made in 2008 in our health insurance

exchange and BPO channels, as well organic growth realized in our annuity and

life insurance exchange channels.”




Evaluation of Disclosure Controls and Procedures² Asrequired by Rule 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, an evaluation wascarried out under the supervision and with theparticipation of our management, including the ChiefExecutive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of ourdisclosure controls and procedures as of September 30,2009. Based upon this evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that,as of September 30, 2009, our disclosure controls andprocedures were effective to provide reasonableassurance that information required to be disclosed in thereports that we file or submit under the Securities

29


Exchange Act of 1934 is accurately and properlyrecorded, processed, summarized and reported within thetime periods specified in the applicable rules and formsand that it is accumulated and communicated to ourmanagement, including our Chief Executive Officer andChief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

Internal Control over Financial Reporting— There wereno changes in our internal control over financialreporting during the nine months ended September 30,2009, that have materially affected, or are reasonablylikely to materially affect, our internal control overfinancial reporting.













30







49. On March 8, 2010, EB IX issued a press release, disclosing it financial

results for the fourth quarter and full year 2009, ended December 31, 2009. Ebix

recorded fourth quarter 2009 revenues of $31.3 million, up 55% from $20.1

million in the fourth quarter of 2008. Annual 2009 revenue increase to $97.7

million up 31 % from $74.8 million in 2008. The Company further recorded fourth

quarter 2009 operating income of $11.856 million ($12.182 million total income

before income taxes for the fourth quarter 2009) up from $8.098 million in the

fourth quarter of 2008. For the year, operating income was $39.256 million, up

from $29.264 in 2008. According to the Company, “Net Income: Q4 2009 net

income was $12.1 million, an increase of 53% on a year-over-year basis, as

compared to Q4 2008 net income of $7.9 million. For the full fiscal year of 2009,

the Company reported net income of $38.8 million, an increase of 42% from the

prior year net income of $27.3 million.”

31


50. The Company recorded income tax provisions of $85,000 and 1.010

million for the fourth quarter and year ended December 31, 2009. This indicates

an effective tax rate of .7% and 2.6% respectively for the fourth quarter and year.

With respect to its taxes, the Company stated that it “expects its blended

worldwide income tax rate to be in the range of 6-8% for the fiscal year 2010; and

a gradual increase to a blended worldwide tax rate of 8-12% over the following

few years.”

51. Of those results, defendant Rai na stated in the March 8 press release:

These results mark 10 years of continued sequentialgrowth for Ebix in the areas of revenue, net income anddiluted EPS. Our Q4 and full year results both are recordresults for the Company. These results demonstrate ourability to withstand difficult times in the industry and theeconomy. To come up with our best ever results in ayear, which was easily considered the worst year in adecade for the insurance industry, makes this year'sperformance even more special for us. We believe thatthe story can get even better from here.

Looking at the future, we see the BRIC countries (Brazil,Russia, China and India) emerging as the key hubsdriving economic growth in the insurance industry overthe next decade or so. We intend to set up strong localbases in each of these countries, to be able to benefitfrom the early mover advantage, while we attempt todeploy exchanges in these countries. Our recent effortsto create strong bases in Brazil, India, Singapore, andChina are a step in that direction.

32


52. In addition, in the March 8, 2010 press release, defendant Kerris

stated:

We are pleased with our results especially since theyinclude non-recurring expenses associated with theacquisitions of EZ Data and Peak. With $19.2 million ofcash as of 31 st December 2009, $22 million of additionalborrowing capacity, and the continued growth inoperating cash flows, we believe that we are wellpositioned to use this cash towards making strategicaccretive acquisitions in the Exchange arena.

53. Also on March 8, 2010, the Company convened an “Earnings

Conference Call,” that defendants Raina and Kerris conducted. During that March

8 conference call

analyst Marty Heiman of Cougar trading asked about the

Company’s fourth quarter 2009 organic growth rate compared to that of the fourth

quarter of 2008 and about the impact of acquisitions during the quarter. In

response, Raina stated:

ROBIN RA INA: Marti, this is one question, I hate to sayit, but I will answer this, and the reason I hate to say thisis because sometimes when companies talk about organicgrowth rate, people want to anyway do their ownanalysis. So my suggestion always to them is there arelots of analysts out there and you can also (inaudible) sopeople can do their own analysis. Our analysis, actually,incidentally tells us that the organic growth rate wassomewhere beyond 14% but I think I'll let the analystsworry about this. We'll continue working on ourfundamentals and keep doing, keep growing the business.

33


54. On March 16, 2010, the Company filed with the SEC its Annual

Report on Form 10-K for the year December 31, 2009 signed by, among others,

Rai na and K erris. In that Form 10-K, Defendants reiterated the Company’s results

from the March 8, 2010 press release. In addition, both Rai na and K erris certified

the Company’s financial results for the fourth quarter and full year 2009, ended

December 31, 2009.

55. In the Annual Report, defendants included information about the

acquisitions of Peak Performance Solutions, Inc. and E-Z Data, Inc., both during

the fourth quarter of 2009. The Company paid $8 million in cash for Peak and

$50.53 million for E-Z Data, consisting of $25.53 in cash and $25 million in EB IX

common stock. In that context, Defendants also commented on the Company’s

revenues with respect to internal growth, stating:

During the twelve months ended December 31, 2009 ourtotal revenue increased $22.9 million or 30.7%, to$97.7 million in 2009 compared to $74.8 million in 2008.The increase in revenues is a result of both the impact ofstrategic business acquisitions made during 2009 and2008 particularly in the area of exchanges, and in ourB PO channel, as well as organic growth realized in ourB PO and Exchange channels. We are able to quicklyintegrate business acquisitions into our existingoperations and thereby rapidly leverage product cross-selling opportunities. The specific components of ourrevenue and the changes experienced during the past yearare discussed further below.

34


*****

Total revenue f The Company’s revenues are derivedprimarily from the services sector with a smaller portioncoming from the software licensing business. Servicesector revenue includes transaction fees, hosting fees,implementation, software development andcustomization, maintenance, consulting, training andproject management services provided to the Company’scustomers using our data exchanges, ASP platforms, andother services. Software licensing revenue includesrevenue derived from the licensing of our proprietaryplatforms and the licensing of third party softwareapplications. During the twelve months ended December31, 2008 our total revenue increased $31.9 million or74%, to $74.8 million in 2008 compared to $42.8 millionin 2007. The increase in operating revenue is a result ofboth organic and acquisitive growth with the effect ofrecently completed business combinations having greaterimpact. We have consistently demonstrated the ability toquickly integrate business acquisition into existingoperations and thereby rapidly leverage product cross-selling opportunities. The specific components of ourrevenue and the changes experienced during the past yearare discussed further below.

56. Also in that Annual Report, defendants included a section on

“Management’s Report on Internal Control over Financial Reporting.” The

assessment of its internal controls did not include recently acquired Facts Services,

Inc., E-Z Data, Inc. or Peak Performance Solutions, Inc. According to

Management:

Based upon this evaluation and assessment, our ChiefExecutive Officer and Chief Financial Officer concluded

35


that as of December 31, 2009 our disclosure controls andprocedures and our internal control over financialreporting are effective to ensure, among other things, thatthe information required to be disclosed by us in thereports that we file or submit under the Securities andExchange Act of 1934 is recorded, processed,summarized, and reported accurately.

Cherry, Bekaert & Holland, L.L.P., the independentregistered public accounting firm that audited ourConsolidated Financial Statements included in thisAnnual Report on Form 10-K, audited the effectivenessof our internal control over financial reporting as ofDecember 31, 2009. Cherry, Bekaert &Holland, L.L.Phas issued their report which is included in this AnnualReport on Form 10-K.












36








58. On M ay 7, 2010, EB IX issued a press release, disclosing it financial

results for the first quarter of 2010, ended M arch 31, 2010. Ebix recorded first

quarter 2010 revenue of $31.6 million up 53% from $20.7 million for the same

quarter in 2009. The Company further recorded operating income of $12.759

million ($12.999 million total income before income taxes) up from $8.357 million

in 2009. According to the Company, “Q 1 2010 net income was $12.4 million, an

increase of 49% on a year-over-year basis, as compared to Q1 2009 net income of

$8.3 million.” The Company recorded an income tax provision of $615,000,

indicating an effective tax rate of 4.7%.

59. Of those results, defendant Rai na stated in the M ay 7 press release:

We are pleased to report record revenues, income andEPS in Q1 of 2010. This was a good quarter for us interms of winning certain key accounts named above. Webelieve that we are uniquely positioned today as an end-to-end enterprise services player for the insuranceindustry. That end-to-end strategy has not been emulated

37


by any Company in the insurances software servicesindustry worldwide providing us a lead of at least a fewyears to gain the early mover advantage worldwide."

We have a choice of growing Ebix aggressively orgrowing Ebix aggressively but sensibly. Ebix can eitherchoose the path of high growth with low 10-15%operating margins or the path of sensible growth with40% or more of operating margins. We prefer to do thelatter and thus remain focused on working towards ourgoal of Annualized Revenue run rate of $200 M i l l ion byQ4 of 2011, with 40% or more in operating margins.Doing that, while ensuring Ebix's 70% plus recurringrevenue streams and minimal customer attrition rates isnot likely to be easy. We believe that if we are able toachieve or beat all these goals by Q4 of 2011, we wouldhave created a new benchmark in terms of operating cashflows, for the On-Demand sector in the United States.

60. On M ay 10, 2010, the Company filed a Quarterly Report on Form 10-

Q for the quarter ended March 31, 2010 signed by defendants Raina and Kerris. In

that Form 10-Q, Defendants reiterated the Company’s results from the May 7,

2010 press release. In addition, as stated above, both Rai na and Kerris certified the

Company’s financial results for the first quarter of 2010, ended March 31, 2010.


“both organically and through a series of acquisitions. . . .” Indeed, during the

second quarter of 2009, the Company acquired Facts Services, Inc. for $6.5 million

in cash, combining it with its EbixHealth division. The reported results from the

second quarter of 2009 included those of Facts Services, Inc.

38





Evaluation of Disclosure Controls and Procedures: TheCompany maintains controls and procedures designed toensure that it is able to collect the information we arerequired to disclose in the reports we file with the SEC,and to process, summarize and disclose this informationwithin the time periods specified in the rules of the SEC.As of the end of the period covered by this report andpursuant to Rule 13a-15 of the Securities Exchange Actof 1934, the Company’s management, including theChief Executive Officer and Chief Financial Officer,conducted an evaluation of the effectiveness and designof our disclosure controls and procedures to ensure thatinformation required to be disclosed by the Company inthe reports that files under the Securities Exchange Act of1934 is recorded, processed, summarized and reportedwithin the time periods specified by the SEC’s rules andforms. Based upon that evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer concludedas of March 31, 2010 that the Company’s disclosurecontrols and procedures were effective in recording,processing, summarizing and reporting informationrequired to be disclosed, within the time periods specifiedin the SEC’s rules and forms.

Internal Control over Financial Reporting: There wereno changes in our internal control over financialreporting during the fiscal quarter ended March 31, 2010,that have materially affected, or are reasonably likely tomaterially affect, our internal control over financialreporting.

39


63. Defendants stated nothing further about the Company’s internal

controls. In particular it did not discuss the internal controls as they related to the

recent acquisitions of E-Z Data and Peak.
















40




65. On August 9, 2010, EB IX issued a press release, disclosing it

financial results for the second quarter of 2010, ended June 30, 2010. Ebix

recorded second quarter 2010 revenue of $32.2 million up 44% from $22.4 million


$13.008 million ($14.566 million total income before income taxes) up from

$9.260 million in 2009. According to the Company, “Q2 2010 net income was

$14.0 million, an increase of 56% on a year-over-year basis, as compared to Q2

2009 net income of $9.0 million. This included non-operating income of $1.4

million resulting from the gain recognized in regards to the decrease in the fair

value of the put option that was issued to the two former stockholders of E-Z Data

who received shares of Ebix common stock as part of the acquisition consideration

paid by the Company.” The Company recorded an income tax provision of

$556,000, indicating an effective tax rate of 3.8%.

66. Of those results, defendant Rai na stated in the August 9 press release:

The insurance industry is still reeling from the aftereffects of the economic crisis in the United States. Withconsumer confidence being rather low, Annuityproduction industry wide is down 20% year over year.The property and casualty sector has had one of the worstyears in a decade. The health insurance industry is still

41


dealing with the uncertainties created by the Healthreform bill passage. In spite of all of that, Ebix hascontinued to move forward with record revenues,earnings, cash flows and net income. We have continuedto substitute production drops in the industry throughorganic growth means by bringing new clients to ourExchanges. We have always believed that a company'strue strength is tested when times are bad for theindustry. A company that can produce record results inan economy like this has a much better chance ofproducing spectacular results as times become better forthe industry as a whole.

We believe that our end-to-end Exchange solutionsprovide us a strategic business and technology advantageover our competition. We are presently in the process ofhiring fifteen new sales people for our Exchange andCRM initiatives. These additional resources shouldenable us to organically grow our revenues moredramatically over the coming months and years.

In recent times, I have often been asked about thepossibility of a dividend being issued by the Company.Clearly, our intent is to try and secure the best possiblereturns from the use of our operating cash flows. Webelieve that our cash can generate much higher returnsfor our shareholders, by investing in both new accretiveacquisitions and organic growth initiatives than throughissuing dividends to our shareholders. While theCompany does not completely rule out the possibility ofissuing dividends in the future, at present we are moreinclined to use our cash to generate further improvementin future earnings.


stated:

42


We are pleased to report $16 million of operating cashflows in the second quarter of 2010 and sustained 40%operating margins. Our current ratio improved to 1.13 atJune 30, 2010 as compared to 0.62 at December 31, 2009and our working capital position improved to $6.1million from a deficit of $28.6 million that existed at theend of the 2009. The improvement in our short-termliquidity position is the result of stronger operating cashflows, the refinancing of our revolving credit facility thatis now set to mature in February 2012, and bettercollections on outstanding trade accounts receivable.

68. On August 9, 2010, the Company filed a Quarterly Report on Form

10-Q for the quarter ended June 30, 2010 signed by defendants Rai na and K erris.

I n that Form 10-Q, Defendants reiterated the Company’s results from the August 9,


Company’s financial results for the second quarter of 2010, ended June 30, 2010.


“both organically and through a series of acquisitions.” Indeed, Defendants stated:

During the three months ended June 30, 2010 our totaloperating revenues increased $9.8 million or 44%, to$32.2 million as compared to $22.4 million during thesecond quarter of 2009. This increase in revenues is aresult of healthy organic growth realized in ourExchange, B PO and Broker channels, and also the due tocertain strategic business acquisitions made during 2009particularly in our Exchange channel. The Companycontinues to consistently and efficiently integrate itsbusiness acquisitions into existing operations, therebyrapidly leveraging product cross-selling opportunities.

43





Evaluation of Disclosure Controls and Procedures: TheCompany maintains controls and procedures designed toensure that it is able to collect the information we arerequired to disclose in the reports we file with the SEC,and to process, summarize and disclose this informationwithin the time periods specified in the rules of the SEC.As of the end of the period covered by this report andpursuant to Rule 13a-15 of the Securities Exchange Actof 1934, the Company’s management, including theChief Executive Officer and Chief Financial Officer,conducted an evaluation of the effectiveness and designof our disclosure controls and procedures to ensure thatinformation required to be disclosed by the Company inthe reports that files under the Securities Exchange Act of1934 is recorded, processed, summarized and reportedwithin the time periods specified by the SEC’s rules andforms. Based upon that evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer concludedas of June 30, 2010 that the Company’s disclosurecontrols and procedures were effective in recording,processing, summarizing and reporting informationrequired to be disclosed, within the time periods specifiedin the SEC’s rules and forms.

Internal Control over Financial Reporting: There wereno changes in our internal control over financialreporting during the quarter ended June 30, 2010, thathave materially affected, or are reasonably likely tomaterially affect, our internal control over financialreporting.

44




















45




73. On November 9, 2010, EB IX issued a press release, disclosing it

financial results for the third quarter of 2010, ended September 30, 2010. Ebix

recorded third quarter 2010 revenue of $33.3 million up 43% from $23.3 million


$13.082 million ($17.449 million total income before income taxes) up from

$9.783 million in 2009. According to the Company, “Q3 2010 net income was

$16.7 million, an increase of 77% on a year-over-year basis, as compared to Q3

2009 net income of $9.4 million. This included non-operating income of $3.9

million resulting from the gain recognized in regards to the decrease in the fair

value of the put option that was issued to the two former stockholders of E-Z Data,

who received shares of Ebix common stock as part of the acquisition consideration

paid by the Company.” The Company recorded an income tax provision of

$768,000, indicating an effective tax rate of 4.4%.

74. Of those results, defendant Rai na stated in the August 9 press release:

We are pleased with these results as we are able todeliver these results despite the present economic crisisin the insurance industry, along with our continuedinvestment in future Exchange and On-Demand Basedproducts and services for the insurance and financialservices industries. We are presently in the process of

46


building many new products designed to expand theportfolio, and geographical reach of many of our servicessuch as life, health and annuity exchanges along withcloud computing based carrier back end systems. Weexpect to launch some of these services in the first half of2011.

We remain focused on creating a fundamentally strongCompany with recurring revenue streams, 40% operatingmargins, minimal customer attrition and healthyoperating cash flows. We have always believed that aCompany with all these attributes has the potential ofbecoming the largest Insurance software services playerworldwide. Accordingly, the Company has not tried togrow its top line aggressively at the cost of its bottom-line. We intend to make efforts to grow bothproportionately.

We feel good about our future prospects both in theUnited States and abroad especially in the area ofExchanges. Accordingly, we are presently in the processof doubling our sales resources across the Companyespecially in the Exchange arena.


stated:

We are pleased with the Company's consistent ability togenerate strong operating cash flows, and in particularthe

fact that the $33.8 million of cash flow from ouroperating activities for the nine months endingSeptember 30, 2010 represents a 93% realization ofadjusted net income (defined as net income less net non-cash gains from derivative instruments and unrealizedforeign exchange gains, or $43.1 million less $5.4 millionand $1.3 million, respectively) for the same period.Despite our rapid growth, only 1.4% of our receivables

47


have been outstanding for more than a year, implyingthat virtually all of our operating revenues are realized inthe form of cash inflows within our annual reportingcycle. As to the health of our balance sheet, we arepleased with the fact that our current ratio has improvedto 1.09 at September 30, 2010 as compared to 0.62 atDecember 31, 2009 due to stronger operating cash flows,retirement of convertible debt obligations, and therefinancing of our revolving credit facility.

76. On November 9, 2010, the Company filed a Quarterly Report on

Form 10-Q for the quarter ended September 30, 2010 signed by defendants Rai na

and Kerris. In that Form 10-Q, Defendants reiterated the Company’s results from

the November 9, 2010 press release. In addition, as stated above, both Raina and

Kerris certified the Company’s financial results for the third quarter of 2010, ended

September 30, 2010.



During the three months ended September 30, 2010 ourtotal operating revenues increased $10.0 million or 43%,to $33.3 million as compared to $23.3 million during thethird quarter of 2009. This revenue increase is a result oforganic growth achieved in our Exchange, B PO andBroker Systems channels, and also because of certainstrategic business acquisitions made during the fourthquarter of 2009 particularly in our Exchange channel.The Company continues to efficiently integrate itsbusiness acquisitions across all existing operations,thereby rapidly leveraging product cross-sellingopportunities.

48





Evaluation of Disclosure Controls and Procedures: TheCompany maintains controls and procedures designed toensure that it is able to collect the information we arerequired to disclose in the reports we file with the SEC,and to process, summarize and disclose this informationwithin the time periods specified in the rules of the SEC.As of the end of the period covered by this report andpursuant to Rule 13a-15 of the Securities Exchange Actof 1934, the Company’s management, including theChief Executive Officer and Chief Financial Officer,conducted an evaluation of the effectiveness and designof our disclosure controls and procedures to ensure thatinformation required to be disclosed by the Company inthe reports that files under the Securities Exchange Act of1934 is recorded, processed, summarized and reportedwithin the time periods specified by the SEC’s rules andforms. Based upon that evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer concludedas of September 30, 2010 that the Company’s disclosurecontrols and procedures were effective in recording,processing, summarizing and reporting informationrequired to be disclosed, within the time periods specifiedin the SEC’s rules and forms.

Internal Control over Financial Reporting: There wereno changes in our internal control over financialreporting during the quarter ended September 30, 2010,that have materially affected, or are reasonably likely tomaterially affect, our internal control over financialreporting.

49




















50




81. On March 14, 2011, EB I X issued a press release, disclosing it

financial results for the fourth quarter and full year 2010, ended December 31,

2010. Ebix recorded fourth quarter 2010 revenues of $35.1 million, up 12% from

$31.3 million in the fourth quarter of 2009. Annual 2010 revenue increase to

$132.2 million up 35% from $97.7 million in 2009. The Company further

recorded fourth quarter 2010 operating income of $13.658 million ($14.640

million total income before income taxes for the fourth quarter 2010) up from

$11.856 million in the fourth quarter of 2009. For the year, operating income was

$52.507 million, up from $39.256 in 2009. According to the Company, “Net

I ncome: Q4 2010 net income was $15.9 million, an increase of 32% on a year-

over-year basis, as compared to Q4 2009 net income of $12.1 million. For the full

fiscal year of 2010, the Company reported net income of $59.0 million, an increase

of 52% from the prior year net income of $38.8 million.”

82. The Company recorded income an tax provision of $635,000 year

ended December 31, 2010. This indicates an effective tax rate of 1.1 % for 2010.

With respect to its taxes, the Company stated that it “The Q4 and full year results

include a net non-recurring tax benefit of $2.3 million from the reversal of

51


valuation allowance that had been held against a portion of our cumulative legacy

net operating loss ("NOL") carryforwards in the United States.”

83. Of those results, defendant Rai na stated in the March 14 press release:

In the year 2010, Ebix emerged as the largest insuranceexchange player worldwide. We intend to launch manynew exchange related services in 2011 and beyond. Ourability to deliver end-to-end exchange services whileproviding enterprise backend solutions in an on-demandmanner continues to differentiate us from all ourcompetitors worldwide. In addition, our focus ondelivering solutions across the globe with the same codebase, while deploying these solutions in multiplelanguages and currencies continues to hold immensevalue for our multinational insurance clients.

In the year 2011, our vision is to focus on three key areas-- one, the launch of new exchanges and on-demandbackend platforms in various geographies across theworld; two, the launch of a mobile utility initiative withapplications in diverse insurance areas being deployed ona utilities basis; three, the continued focus on serviceslike Ebix Enterprise targeted at providing a single on-demand platform to a wide variety of insurance entitiesacross all insurance product lines.


stated:

We are very pleased with the improvements realizedduring 2010 particularly regarding our operating cashflows and the overall health of our balance sheet. Ourrecurring operating activities during 2010 produced $19.0million of additional cash flows above the levels realizedin 2009. We closed the year with $23.4 million of cash

52


on hand, an increase of $4.2 million or 22% from a yearearlier, in spite of investing $15.2 million for businessacquisitions, remitting $22.5 million to settle outstandingconvertible debt, and paying $10.5 million to repurchaseshares of our common stock. During 2010 our currentratio significantly improved and was 1.56 at December31st as compared to 0.62 a year earlier, and weeliminated all but $5.0 million of the previous $29.4million of convertible debt.

85. On March 16, 2011, the Company filed with the SEC its Annual

Report on Form 10-K for the year December 31, 2010 signed by, among others,

Rai na and K erris. In that Form 10-K, Defendants reiterated the Company’s results

from the March 14, 2010 press release. In addition, both Rai na and K erris certified

the Company’s financial results for the fourth quarter and full year 2010, ended

December 31, 2010.

86. Also in that Annual Report, defendants included a section on

“Management’s Report on Internal Control over Financial Reporting.” They

purportedly assessed and tested the Company’s internal controls, finding them to

be effective. The Company stated:

Based upon this evaluation and assessment, our ChiefExecutive Officer and Chief Financial Officer concludedthat as of December 31, 2010 our disclosure controls andprocedures and our internal control over financialreporting are effective to ensure, among other things, thatthe information required to be disclosed by us in thereports that we file or submit under the Securities and

53


Exchange Act of 1934 is recorded, processed,summarized, and reported accurately.

87. Cherry, Bekaert & Holland, L . L. P., the independent registered public

accounting firm that audited the Company’s Consolidated Financial Statements

opined on the quality of the Company’s internal controls, stating:

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board(United States), the Company’s internal control overfinancial reporting as of December 31, 2010, based oncriteria established in Internal Control-IntegratedFramework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO),and our report dated March 16, 2011 expressed anunqualified opinion thereon.










54










89. On May 10, 2011, the Company disseminated a press release,

detailing its first quarter 2011 financial and operating results. Ebix recorded first

quarter 2011 revenue of $40.1 million up 27% from $31.6 million for the same

quarter in 2010. The Company further recorded operating income of $15.634

million ($16.733 million total income before income taxes) up from $12.759

million in 2010. According to the Company, “Q 1 2011 net income rose 22% to

$15.2 million, as compared to Q1 2010 net income of $12.4 million. The Q1 2011

net income number includes a non-operating charge of $354 thousand resulting

from the increase in the fair value of the put option that was issued to the two

former stockholders of E-Z Data who received shares of Ebix common stock as

part of the acquisition consideration paid by the Company in October 2009.” The

55


Company recorded an income tax provision of $1.569 million, indicating an

effective tax rate of 9.4%.

90. Of these results, Rai na stated:

Ebix turned in a strong Q1 2011 performance. Operatingmargins and cash flow from operations remained strongdespite the impact of one-time acquisition, integrationand other A.D.A.M. -- related costs. The highlight of theQ1 2011 results for us is the fact our operating marginswould have been 43% when excluding the non-recurringexpenses directly associated with the ADAM acquisition(specifically $1.39 million investment banking fee and$0.4 million of employee severance costs).

We are very pleased with the progress of the A.D.A.M.integration so far. We anticipate positive revenue andprofit contributions from A.D.A.M. in future periods aswe work to leverage their customer reach, healthinformation, and e-Learning expertise to createpioneering health content and e-commerce exchanges inthe United States and abroad. The integration has provento be particularly streamlined given A.D.A.M. was alsobased in Atlanta.

91. In addition, Kerris stated:

Ebix continued to produce sustainable and attractive cashflow from our ongoing operations during Q1 2011. With$39.3 million of bank deposits ($35.6 million of cash and$3.7 million of fixed deposits for 90 days or more) as ofMarch 31, 2011, $26.3 million of additional borrowingcapacity as of April 19, 2011, and the continued growthin operating cash flows, Ebix is well positioned to usethis cash towards supporting continued organic growth,develop cutting edge products and services, and makingstrategic accretive acquisitions in the Exchange arena.

56


As of March 31, 2011, the Company had remainingavailable domestic NOL carry-forwards of $68.5 millionwhich are available to negate cash outflows that willotherwise have been expected in connection with futurefederal and certain tax payments associated with futuretaxable income. Our Q1 results reflect a worldwideeffective tax rate of 9.4% versus 4.7% in Q1 of 2010reflecting a relatively greater mix of income in higher taxrate jurisdictions in Q1 of 2011, as compared to the samequarter in 2010.

92. On May 10, 2011, the Company filed with the SEC a Quarterly

Report on Form 10-Q for the quarter ended March 31, 2010 signed by defendants

Rai na and Kerris. In that Form 10-Q, Defendants reiterated the Company’s results

from the May 10, 2011 press release. In addition, as stated above, both Rai na and

Kerris certified the Company’s financial results for the first quarter of 2011, ended

March 31, 2011.



During the three months ended March 31, 2011 our totaloperating revenues increased $8.4 million or 27%, to$40.1 million as compared to $31.6 million during thefirst quarter of 2010. This revenue increase is primarilythe result of the growth achieved across our Exchangechannel and the revenue from the acquisition of ADAMsince February 7, 2011. The Company continues toefficiently integrate its business acquisitions across allexisting operations leveraging product cross-sellingopportunities.

57





Evaluation of Disclosure Controls and Procedures: TheCompany's management evaluated, with the participationof the Chief Executive Officer and Chief FinancialOfficer, the effectiveness of the company's disclosurecontrols and procedures as of the end of the periodcovered by this report. Based on that evaluation, theChief Executive Officer and Chief Financial Officer haveconcluded that the Company's disclosure controls andprocedures were effective as of the end of the periodcovered by this report.

Internal Control over Financial Reporting: There wereno changes in our internal control over financialreporting during the quarter ended March 31, 2011, thathave materially affected, or are reasonably likely tomaterially affect, our internal control over financialreporting.








58


40% without disclosing the unsustainability of its practices or that it would










THE TRUTH BEGINS TO EMERGE

96. On March 24, 2011, Seeking Alpha published a report by Copperfield

Research (“Copperfield”), carried by Bloomberg, titled Ebix: Not a Chinese Fraud,

but a House of Cards Nonetheless.

97. About Ebix’s growth, Copperfield stated:

Winston Churchill's famous quote, "a riddle wrapped in amystery inside an enigma," might as well have beentargeting Ebix Inc. (EBIX). EBIX has been anaggressive acquirer of a variety of companies over the

59


years, many of which focus on the insurance industry.The company's offering mix is a confusing amalgamationof niche products that all have a "roll-up" stench. RobinRai na, EB IX's CEO, has liberally described his businesswith the buzz words du jour, such as "exchanges,""CRM ," "The Cloud," and "SaaS."

The stock has performed well, fueled by retail investorinterest, momentum publications like Investors' BusinessDaily and minimal scrutiny from analysts. We believethat EBIX is nothing more than a roll-up that hasmaterially misrepresented its business (relative to theCEO's buzz words) as well as its organic growth. Itsbusiness model is predicated on two principals: taxarbitrage and dramatic cost cuts (headcount reductionsand offshori ng), neither of which is sustainable. Further,the company's tax arbitrage may be more than "just"unsustainable, it may actually be illegal.EB IX's problems run deeper than unusual accounting.The EBIX story also comes with multiple auditorresignations, governance abuses, misrepresented organicgrowth, questionable cash flow and a contentious CEO.Below we address these concerns in great detail. Giventhe gravity of these issues, we have notified the IRS andthe SEC of the material abuses at EBIX. We hope thewarranted scrutiny saves investors from significant lossesas the true EB IX story gets told.

EBIX shares are worth no more than $9.00, a level thatwould represent a 65% decline from current prices. Wearrive at our target by adjusting current consensusestimates for a 35% tax rate (where it will likely go), andapplying a generous market multiple of 12x normalizedearnings (consensus estimates include assumptions thatare unattainable and adjust for oddities such asamortization, while failing to contemplate massiveunderi nvestment in sales and R& D). We estimate that

60


the company has less than $0.75 of de novo earningspower.

98. In a sweeping indictment of Ebix, defendant Raina and the

Company’s auditor, Copperfield summarized the following issues:

Part I of this his report will detail:

1) The History of a Roll-up & Its "Slash & Burn"Strategy. The $970 million of "value creation" imbeddedin EB I X's valuation is likely to collapse given the myriadof issues the company currently faces.

2) EBIX's Atrocious Organic Growth andManipulative Metrics. Investors have a distorted viewof the company's growth profile. We estimate organicgrowth was negative in 2009 and was less than 4% in2010. Management's definition of organic growth ishighly manipulative and demonstrates the deceptivenature of the CEO.

3) Growth Crippled by Suspiciously Low Sales andR&D Expense. EB I X's extremely low sales andmarketing and product development expenses are notconsistent with a technology company. EB I X'scompany-wide sales and marketing expense was $2million less than the stand alone run-rate of a recentacquisition. This acquired company that outspent EB I Xwas 1 /20th of EB I X's size. EB I X's margins are overstatedand will be crippled by massive reinvestment to avoidlarger declines in organic growth. The only segment ofEB I X's business that has not benefited from a recentacquisition declined 27% in the fourth quarter.

4) ADAM Assumptions are Incomprehensible andWill Drive Disappointment in 2011. EB I X recently

61


closed its largest acquisition to date. EB I X must improveA DA M's margins by 2,500 basis points on day one, growfaster than ADAM did in the previous 3 years, recognizeno D&A expenses and recognize a zero percent tax rateto generate the $0.15 of accretion that the company hasguided to. This overly aggressive guidance will result innegative earnings revisions relative to analyst's elevatedexpectations.

Part II of this his report will detail:5) Potentially I l legal Tax Strategy and Impact onEarnings and Valuation.

EB I X utilizes two strategies to reduce taxes to nearlyzero. The first strategy suggests a lack of oversight fromauditors and earnings manipulation. The second is moresinister and potentially i l legal . Through a series ofsuperficial transactions that pose no business purposeother than to avoid U.S. taxes, EBIX was able to turneach dollar of foreign revenue into $1.40 of profits in2010. This tax strategy is not sustainable in the near, orintermediate, term. A higher tax rate in the future willdramatically change the economics of EB I X's business,significantly impair its earnings expectations, and couldsubject the company to significant fines, penalties andback taxes.

6) Free Cash Flow Myth. Many investors use free cashflow to justify EBI X's valuation. We believe EBI X's freecash flow is a highly distorted metric given limited cashR&D expense and its questionable tax strategy. In fact,if investors simply adjust for a normalized tax rate, thenEB I X trades at 37x free cash flow. Taken a step further,and adjusting for R&D expense for acquired technologycosts (acquisitions in the cash flow from investingsegment), then EB I X trades at nearly 50x free cash.

62


7) Significant Quality of Earnings Issues. EBIXappears to manage earnings through accountingshenanigans, including accounts receivable and itsallowance for doubtful accounts. The very low level ofacquisition price allocated to non-indefinite intangibles ishighly suspicious for a technology company and points toa lack of auditor oversight and a desire to overstateearnings through lower amortization. In 2010, EBIXgenerated almost $0.20 of earnings that are unlikely torepeat in 2011, which could drive incremental earningsdisappointment.

Part III of this his report will detail:

8) History of Auditor Turnover, Shockingly LowAudit Fees and Accounting Red Flags. Investorsshould view EBIX's stated financials with extremeskepticism given the myriad accounting and oversightissues. EBIX has had four different auditors over thepast seven years. Management's explanation for the highauditor turnover does not reconcile with the company'sfilings. EBIX pays its tiny regional auditing firm lessthan $350,000 a year in audit fees, a tiny fraction of theaudit fees that are paid by companies EB IX's size.

9) Controversial CEO Appears to Demonstrate aHistory of Misrepresentation. EBIX's CEO does notallow analysts or investors access to other members ofhis management team. This alone is cause for concernabout what Robin is hiding. The CEO makes 1,250%more than any other employee. The company's lack ofbench strength will again be on full display at theirsecond ever analyst day on April 1 st. The CEO's charityappears to make outlandish claims relative to its size andscope.

10) SaaS Provider? We Think Not. EBIX'smanagement and analysts claim EBIX is the next great

63


SaaS provider. This is a gross misrepresentation. SaaScompanies measure their deferred revenue in quarters andyears due to the subscription nature of the business.EB IX's deferred revenue can barely be measured in daysand weeks. As a result, EBIX has minimal visibilityrelative to real SaaS providers. Also, managementmisrepresents its products by classifying the majority ofits business as "exchanges." These misrepresentations areconsistent with management's historical actions.

99. On this news, shares of Ebix declined $7.20 per share, or over 23%,

closing on March 24, 2011 at $22.52 per share on relatively enormous trading

volume of nearly 15 million shares traded.

100. In an attempt to further defendants’ fraud, Ebix responded to

Copperfield’s analysis in a March 25, 2011 press release, defending itself and its

management. It stated:

The Company also refuted the random implications in arecent blog posted on Seeking Alpha about the Company.The Company normally does not comment on blog posts,but believes it is the author's intention to advance hisinterests, and the interests of other investors that havetaken a position adverse to the long-term growthprospects of the company. It is management's opinionthat this post misrepresents and distorts facts not relevantto the Company's current financial position, long-termgrowth prospects and management policies. To that end,the Company reiterates its long term growth initiativesand expansion opportunities, both domestically andinternationally with an expanding distribution channeland broadening a product offering.

64


The Company holds its directors, officers and employeesto the highest ethical standards in both its businessoperations, and in its efforts to achieve long-term valuefor its shareholders. The Seeking Alpha post appears tohave been issued specifically to cause a decline in theCompany's stock price to support the increase in the shortinterest in the Company stock, and purchases of stockoptions related to these short positions. The company isconsidering filing a formal complaint with the Securitiesand Exchange Commission's Division of Trading andMarkets and Division of Enforcement, to report thisanonymous blog targeted at causing a decline inshareholder value. The Company will take otherappropriate action if needed to protect its businessoperations and the reputation of its management team,board of directors, employees and partners.

101. On May 24, 2011, three former shareholders of Peak Performance

Solutions, Inc. (“Peak”) filed a lawsuit against EBIX, alleging breach of contract

and fraudulent misrepresentation. According to the complaint (“Peak Complaint”),

in purchasing Peak, EBIX agreed to and “earn-out” based on Peak’s 2010 revenue

and the value of Peak’s accounts receivable as of September 30, 2009. In the Peak

Complaint, the former shareholders alleged that EB IX violated the purchase

agreement by failing to provide certified financial statements for Peak.

102. In October, 2009, the former shareholders of Peak sold their company

to Ebix for $8 million, in cash, plus and “earn out” of up to $1.5 million based on

Peak’s revenues in 2010. The purchase agreement required Ebix to pay the earn

out within 5 days of the completion of Peak’s audited 2010 financial statements but

65


no later than 90 days after the end of 2010. The purchase agreement also required

Ebix to provide the shareholders Peak’s audited financial statements for 2010. Not

only did Ebix fail to provide Peak’s audited financial statements, but it failed to

pay the earn out.

103. Despite numerous contacts seeking audited financial statements, as of

mid-May, 2011, Ebix admitted that it had not had Peak’s financials independently

audited and that it would take weeks to perform such an audit. According to the

shareholders, however, it was not Peak’s accounting that prevented the production

of audited financials, but those of Ebix.

104. According to the shareholders’ complaint, Ebix “was consistently

unable to properly bill customers, tie customer payments to invoices issued by

Ebix on Peak’s behalf, provide basic financial data or calculate Peak’s revenue

during the Earn Out Period.” Again, according to the shareholders, Ebix merged

Peak operations into Ebix, instead imposing Ebix accounting controls over Peak.

105. For example, immediately after acquiring its, Ebix transferred Peak’s

billing function to Ebix employees who were unable to understand or properly

account for Peak’s operations. Ebix immediately fired 5 Peak employees,

including the only one responsible for customer billing. Ebix could not timely and

properly invoice customers. This caused Peak’s business to suffer, as customers

66


left or reduced their business with Peak over the billing errors. One such customer

was Sentry Insurance Company which was to retain Peak to provide services at

$7,500 per month during 2010. Because of the invoice errors, Sentry did not retain

Ebix. Notwithstanding that Peak’s shareholders informed Ebix of these issues in

November 2009, Ebix did nothing.

106. More, as a direct result of Ebix billing problems, it failed to allocate

Peak sales to the appropriate accounting period, likely overstating Peak’s accounts

receivable for the fourth quarter of 2009. In addition, with knowledge of an

overstatement of Peak’s revenue during the fourth quarter of 2009, Ebix simply

reduced 2010 revenue to correct for its mistakes in late 2009.

107. Still further, having fired Peak’s accounting personnel, Ebix was

immediately responsible for tracking customer payments. Unable to tie payments

to invoices, Ebix was “unable to determine which customers had made payment for

which projects.” Once again, having fired Peak’s accounting personnel

immediately, this was an Ebix-specific problem and not a legacy problem of

Peak’s former management. As a result, Ebix is unable to manage accounts

receivable or to create and maintain accurate books and records with respect to

Peak.

67


108. After purchasing Peak, Ebix retained as a senior vice president former

Peak shareholder Steven R. Isaac (“Isaac”). After assuming control of Peak, Ebix

was consistently unable to provice I saac basic accounting information in response

to his repeated requests. When Ebix did provide this information, according to

Isaac, it was riddled with errors.

109. In response to the Peak shareholders’ inquiries, Ebix cannot provide

accurate numbers. For example, in April, 2011, defendant Kerris provided an

unsupported spread sheet purporting to reflect Peak’s revenues during 2010. The

spreadsheet failed accurately to reflect the amounts Ebix actually received from

customers, indicating that some customers provided “negative revenues” during

2010. The spread-sheet K erris provided showed $5.875 million in 2010 revenue.

In December 2010, however, Ebix controller Sean Donaghy (“Donaghy”) provided

a calculation of Peak’s revenues during 2010, something he updated in April 2011.

According to Donaghy, Peak billed $6.5 million during 2010. Ebix is unable to

account for this discrepancy. According to Ebix’s own billing records, however,

Peak billed its customers $6.656 million in 2010. Ebix is unable to resolve the

material discrepancy between defendant K erris, controller Donaghy and its own

billing records.

68


110. According to the Peak shareholders, the failure of Ebix’s controls

seeped into its cash flow management and revenue and expense tracking. This

directly affected its ability to attract new customers. For example, to do business

in West Virginia, Ebix was required to pay unemployment compensation

premiums. Ebix failed to pay that premium, disabling it from doing business in

West Virginia. As a result, Ebix lost a long-term Peak customer that contributed

$65,000 in revenue annually. In addition, Ebix’s had issues with its bank accounts

as in March, 2010, it bounced several checks including to one of the former Peak

shareholders.

111. Defendants knew or were reckless in not knowing, too, that Ebix’s

accounts receivable collection mechanism was deeply flawed and yielded

inaccurate information that it included in its financial statements. For example,

Ebix was required to pay the former Peak shareholders all pre-closing accounts

receivable through September 30, 2009. Peak’s is a payment-for-service business.

Customers who fail to pay no longer receive service. This minimized accounts

receivable write-offs. Ebix ’s inability to collect receivables relating to Peak’s pre-

closing accounts lead to approximately $250,000 in write-offs. Ebix was unable

either to tack which customers had paid pre-closing receivables or to explain why

invoices were still outstanding in 2011.

69


112. On June 3, 2011, in response to a sharp dip in the price of its stock,

defendants confirmed the Company’s financial health, including strong cash flow

growth for 2011, strong sales, and healthy and improving operating margins. The

Company then reiterated that it was buying back up to $45 million in Ebix shares.

113. On June 30, 2011, Bloomberg wrote a story on the Peak shareholders’

suit. In that story, Bloomberg noted that a similar suit was filed in San Diego,

California in April, 2010, alleging that Ebix had lost control of its accounts

receivable accounting. As a result of the June 30, 2011 disclosure of these

allegations, the price of Ebix fell by $1.30 per share to close at $19.05 per share,

down 6% from its previous close on unusually heavy trading volume of over 5

million shares traded.

114. As a result of defendants’ false statements and omissions, EB IX

common stock traded at artificially inflated prices during the Class Period.

ADDITIONAL SCIENTER ALLEGATIONS

115. As alleged herein, defendants acted with scienter in that defendants

knew that the public documents and statements issued or disseminated in the name

of the Company were materially false and misleading; knew that such statements

or documents would be issued or disseminated to the investing public; and

knowingly and substantially participated or acquiesced in the issuance or

70


dissemination of such statements or documents as primary violations of the federal

securities laws. As set forth elsewhere herein in detail, defendants, by virtue of

their receipt of information reflecting the true facts regarding EB I X, their control

over, and/or receipt and/or modification of EB I X allegedly materially misleading

misstatements and/or their associations with the Company which made them privy

to confidential proprietary information concerning EB I X, participated in the

fraudulent scheme alleged herein.

LOSS CAUSATION

116. During the Class Period, as detailed herein, defendants engaged in a

scheme to deceive the market and a course of conduct that artificially inflated the

prices of EBI X common stock and operated as a fraud or deceit on Class Period

purchasers of EB I X common stock by failing to disclose and misrepresenting the

adverse facts detailed herein. When defendants' prior misrepresentations and

fraudulent conduct were disclosed and became apparent to the market through

partial disclosures, the price of EB I X common stock fell precipitously as the prior

artificial inflation came out. As a result of their purchases of EB I X common stock

during the Class Period, Plaintiff and the other Class members suffered economic

loss, i. e., damages, under the federal securities laws when the truth about EB I X

71


was revealed through a series of partial disclosures that removed the artificial

inflation from the price of EB I X common stock.

117. By failing to disclose to investors the adverse facts detailed herein,

defendants presented a misleading picture of EBIX’s business and prospects.

Defendants’ false and misleading statements had the intended effect and caused

EB I X common stock to trade at artificially inflated levels throughout the Class

Period, reaching as high as $30.35 per share on M arch 24, 2011.

118. As a direct result of the disclosures on M arch 24, 2011 and June 30,

2011, EB I X common stock fell precipitously. These drops removed a good deal of

the artificial inflation from the price of EB I X common stock, causing real

economic loss to investors who had purchased EB I X common stock at artificially

inflated prices during the Class Period.

119. The declines were a direct result of the nature and extent of

defendants’ fraud finally being revealed to investors and the market. The timing

and magnitude of the price declines in EB I X common stock negates any inference

that the loss suffered by Plaintiff and the other Class members was caused by

changed market conditions, macroeconomic or industry factors or Company-

specific facts unrelated to defendants' fraudulent conduct. The economic loss, i.e.,

damages, suffered by Plaintiff and the other Class members was a direct result of

72


defendants' fraudulent scheme to artificially inflate the prices of EBIX common

stock and the subsequent significant declines in the value of EB IX common stock

when defendants' prior misrepresentations and other fraudulent conduct were

revealed.

APPLICABILITY OF PRESUMPTION OF RELIANCE:FRAUD ON THE MARKET DOCTRINE

120. At all relevant times, the market for EBIX common stock was an

efficient market for the following reasons, among others:

(a) EBIX common stock met the requirements for listing, and was

listed and actively traded on the NASDAQ, a highly efficient and automated

market;

(b) As a regulated issuer, EBIX filed periodic public reports with

the SEC and the NASDAQ;

(c) EBIX regularly communicated with public investors via

established market communication mechanisms, including regular disseminations

of press releases on the national circuits of major newswire services and other

wide-ranging public disclosures, such as communications with the financial press

and other similar reporting services; and

(d) EB IX was followed by several securities analysts employed by

major brokerage firms who wrote reports which were distributed to the sales force

73


and certain customers of their respective brokerage firms. Each of these reports

was publicly available and entered the public marketplace.

121. As a result of the foregoing, the market for EBIX common stock

promptly digested current information regarding EB I X from all publicly available

sources and reflected such information in the prices of the stock. Under these

circumstances, all purchasers of EB I X common stock during the Class Period

suffered similar injury through their purchase of EB I X common stock at artificially

inflated prices and a presumption of reliance applies.

NO SAFE HARBOR

122. The statutory safe harbor provided for forward-looking statements

under certain circumstances does not apply to any of the allegedly false statements

pleaded in this Complaint. Many of the specific statements pleaded herein were

not identified as “forward-looking statements” when made. To the extent there

were any forward-looking statements, there were no meaningful cautionary

statements identifying important factors that could cause actual results to differ

materially from those in the purportedly forward-looking statements.

Alternatively, to the extent that the statutory safe harbor does apply to any

forward-looking statements pleaded herein, defendants are liable for those false

forward-looking statements because at the time each of those forward-looking

74


statements were made, the particular speaker knew that the particular forward-

looking statement was false, and/or the forward-looking statement was authorized

and/or approved by an executive officer of EB IX who knew that those statements

were false when made.

COUNT I

FOR VIOLATION OF §10(b) OF THE 1934 ACT AND RULE 10b-5AGAINST ALL DEFENDANTS

123. Plaintiff reiterates and incorporates herein by reference the foregoing

paragraphs as if fully stated herein.

124. During the Class Period, defendants disseminated the material false or

misleading statements specified above, which they knew or deliberately

disregarded were misleading in that they contained misrepresentations and failed to

disclose material facts necessary to make the statements made, in light of the

circumstances under which they were made, not misleading.

125. Defendants violated § 10(b) of the 1934 Act and Rule 10b-5 in that

they:

(a) employed devices, schemes and artifices to defraud;

(b) made untrue statements of material facts or omitted to state

material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading; or

75


(c) engaged in acts, practices and a course of business that operated as

a fraud or deceit upon plaintiff and others similarly situated in connection with

their purchases of Ebix common stock during the Class Period.

126. By virtue of the foregoing, Ebix and the Individual Defendants have

each violated § 10b of the 1934 Act, and Rule 10b-5 promulgated thereunder.

127. As a direct and proximate result of defendants' wrongful conduct,

Plaintiff and the Class have suffered damages in connection with their respective

purchases and sales of Ebix stock during the Class Period, because, in reliance on

the integrity of the market, they paid artificially inflated prices for Ebix common

stock and experienced loses when the artificial inflation was released from Ebix

stock as a result of the partial revelations and stock price decline detailed herein.

Plaintiff and the Class would not have purchased Ebix common stock at the prices

they paid, or at all , if they had been aware that the market prices had been

artificially and falsely inflated by defendants’ misleading statements.

COUNT II

FOR VIOLATION OF §20(a) OF THE 1934 ACTAGAINST INDIVIDUAL DEFENDANTS

128. Plaintiff reiterates and incorporates herein by reference the foregoing

paragraphs as if fully stated herein.

76


129. The Individual Defendants acted as controlling persons of EB I X

within the meaning of §20(a) of the 1934 Act. By reason of their controlling

positions with the Company, the Individual Defendants had the power and

authority to cause EB I X to engage in the wrongful conduct complained of herein.

By reason of such conduct, the I ndividual Defendants are liable pursuant to §20(a)

of the 1934 Act.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for judgment as follows:

A . Declaring this action to be a proper class action pursuant to Fed. R.

Civ. P. 23;

B. Awarding Plaintiff and the members of the Class damages, including

interest;

C. Awarding Plaintiff reasonable costs and attorneys' fees; and

D. Awarding such equitable/injunctive or other relief as the Court may

deem just and proper.

77


JURY DEMAND

Plaintiff demands a trial by jury.

Dated: July 21, 2011.HOLZER HOLZER &FISTEL, LLC

/s/Marshall P. Dees Corey D. HolzerGeorgia Bar Number: 364698Michael I. Fistel , Jr.Georgia Bar Number: 262062Marshall P. DeesGeorgia Bar Number: 105776William W. StoneGeorgia Bar Number: 273907200 Ashford Center NorthSuite 300Atlanta, Georgia 30338Telephone: 770-392-0090Facsimile: 770-392-0029

FARUQI & FARUQI, LLPAntonio VozzoloRichard Gonnel lo369 Lexington Avenue, 10th FloorNew York, New York 10017Tel: 212-983-9330Fax: [email protected]

and

Jacob A. GoldbergSandra G. Smith101 Greenwood Avenue, Suite 600Jenkintown, PA 19046

78


TeI : 215-277-5770Fax: 215-277-5771j goI dberg@faruqi I aw-comssmith@faruqiI aw-com

Attorneys for Plaintiff

79

“Ebix” June 30, 2011 (the “...

Documents

Transcript of “Ebix” June 30, 2011 (the “...