SEBI fines Hindenburg-targeted Ebix for misrepresenting facts

The regulator examined, among other things, whether the press release provided incorrect disclosures about the Hindenburg Report.

EbixCash and its promoter Ebix, of which Hindenburg Research had written as having a "glaring fake revenue problem", were found to be in violation of the public issue regulations including downplaying and misrepresenting facts in the press release issued in response to the short-seller's report.

Both the company and its promoter entity were jointly fined Rs 6 lakh by the market regulator on Thursday. EbixCash, which had planned to list in the Indian markets, had withdrawn from the process in 2023.

In the order dated December 19, the Securities and Exchange Board of India's (SEBI's) Adjudicating Officer Asha Shetty noted that the press release (dated July 6, 2023) issued by the promoter Ebix, with respect to the Hindenburg report, had "downplayed the material impact of revenue restatements and misrepresented ongoing court proceedings".

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Hindenburg's report

The short-seller had released a report titled "Ebix: This House of 'Cards' Seems to Have a Glaring Fake Revenue Problem". Ebix claimed that the press release issued in response to this report addressed the report's claims through public clarifications and legal actions.

The regulator examined, among other things, whether the press release provided incorrect disclosures about the Hindenburg Report. On examination, the regulator found that the press release claimed that the restatement of revenues was "numerically immaterial", but the revenue figures restated saw a change of over 64 percent.

As the SEBI order said, "The change of over 64% in revenue figures undermines the assertion of numerical immateriality and raises significant questions about the transparency of the disclosures made by the Noticee".

As the SEBI order said, "the disclosures (made through the press release) failed to explicitly acknowledge the scale and materiality of the financial restatement".

It added, "This omission is critical in the context of investor decision-making, particularly for prospective investors in EbixCash. The downplaying of substantial financial adjustments through misleading language in the press release constitutes a serious lapse in adherence to the disclosure standards under SEBI (ICDR) Regulations".

On a legal process

The SEBI order also said that the press release issued by Ebix misrepresented a judicial order as a definitive ruling against the Hindenburg Report, "which is factually incorrect".

The Sessions Court in its interim order (dated July 5, 2022) had "explicitly clarified that the injunction was provisional and not an opinion on the merits of the case".

SEBI order said, "The Noticees’ claims that the press release contained adequate and compliant disclosures are not substantiated by the facts. The press release downplayed the material impact of revenue restatements and misrepresented ongoing court proceedings. The failure to obtain approvals from BRLMs (book running lead managers) before issuing the press release further compounds the violations."

The regulator found EbixCash and its promoter entity to be in violation of norms related to public communication in multiple instances.