Case 1:11-cv-02400-RWS Document 68 Filed 07/19/13 Page 1 of 30

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

In re: EBIX INC. SECURITIES LITIGATION

Master File No. 1:11-CV-02400-RWS

MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS MOTION FOR JUDGMENT ON THE PLEADINGS

HOLZER HOLZER & FISTEL, LLC Michael I. Fistel, Jr. Marshall P. Dees 200 Ashford Center North, Suite 300 Atlanta, Georgia 30338 Telephone: 770-392-0090 Facsimile: 770-392-0029 FARUQI & FARUQI, LLP Jacob A. Goldberg David P. Dean 101 Greenwood Avenue, Suite 600 Jenkintown, PA 19046 Telephone: 215-277-5770 Facsimile: 215-277-5771 Attorneys for Lead Plaintiff

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TABLE OF CONTENTS PAGE(S) TABLE OF AUTHORITIES ..................................................................................... ii I. II. INTRODUCTION ...........................................................................................1 ARGUMENT ...................................................................................................1 A. B. C. D. Defendants Motion Is Not Properly Before This Court ........................1 Standard of Review ...............................................................................3 The Eleventh Circuits Meyer Decision Changes No Standard ............3 The Copperfield Report Contains Corrective Disclosures..................10 1. 2. E. The Information in the Copperfield Report was not Stale ........ 11 The Copperfield Report Revealed Potential Fraud ...................16

The Market Absorbed Information about the ......................................18 1. 2. The Information in the Bloomberg Article was not Stale .........19 The Bloomberg Article Revealed Ongoing Fraud ....................23

III.

CONCLUSION..............................................................................................24

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TABLE OF AUTHORITIES

Page(s) Cases In re Apple Computer Sec. Litig., 886 F.2d 1109 (9th Cir. 1989) ............................................................................22 Bankers Ins. Co. v. Fla. Residential Prop. & Cas. Joint Underwriting Assn, 137 F.3d 1293 (11th Cir. 1998) ............................................................................ 3 Basic Inc. v. Levinson, 485 U.S. 224 (1988) ..................................................................................1, 5, 6, 7 Basic, Inc. v. Levinson, 485 U.S. 224 (1988) ..............................................................................................6 Billhofer v. Flamel Techs., S.A., 281 F.R.D. 160 (S.D.N.Y. 2012) ..............................................................9, 22, 23 Cook v. Campbell, 482 F. Supp. 2d 1341 (M.D. Ala. 2007) ............................................................... 3 FindWhat Investor Group v. FindWhat.com, 658 F.3d 1282 (11th Cir. 2011) ...................................................................passim In re FirstEnergy Corp. Sec. Litig., 316 F. Supp. 2d 581 (N.D. Ohio 2004) ..............................................................17 Freeland v. Iridium World Commcn, Ltd., 545 F. Supp. 2d 59 (D.D.C. 2008) ..................................................................9, 22 Horsley v. Rivera, 292 F.3d 695 (11th Cir. 2002) .............................................................................. 3 In re: Merck & Co., Inc. Sec. Litig., 432 F.3d 261 (3d Cir. 2005) .............................................................................7, 8 Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013) ...................................................................passim In re: Omnicom Group, Inc. Sec. Litig., 597 F.3d 501 (2d Cir. 2010) ................................................................................. 8
ii

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Ortega v. Christian, 85 F.3d 1521 (11th Cir. 1996)) .............................................................................3 Schlanger v. Four-Phase Systems, Inc., 555 F. Supp. 535 (S.D.N.Y. 1982) ....................................................................... 5 In re Winstar Commcns, No. 01-3014, 2006 U.S. Dist. Lexis 7618 (S.D.N.Y Feb. 27, 2006).............. 7, 21 Rules Local Rule 7.1(A)(2) ..................................................................................................1 Other Authorities Barber Griffin & Lev, The Fraud on the Market Theory and the Indicators of Common Stock Efficiency, 19 Iowa J. Corp. L. 285 (Winter, 1994) .................... 6

iii

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I.

INTRODUCTION The Eleventh Circuit broke no new ground whatsoever in Meyer v. Greene,

710 F.3d 1189 (11th Cir. 2013). Rather, Meyer is wholly faithful to Basic Inc. v. Levinson, 485 U.S. 224 (1988), and its progeny, in holding that corrective disclosures cannot be either stale information repackaged in an opinion piece or matters opining on an issuers future performance as opposed to past fraud. Meyer, 710 F.3d at 1199-1200. Viewed in this light, the corrective disclosures relied upon by Plaintiff the Copperfield Report and the June 30, 2011 Bloomberg article support Plaintiffs theory of loss causation. Both corrective disclosures contained new information, revelatory of past fraud, the disclosure of which caused declines in the market price of Ebix stock. As such, Defendants Motion must be denied. II. ARGUMENT A. Defendants Motion Is Not Properly Before This Court

Violating Local Rule 7.1(A)(2), Defendants improperly filed their Motion. That rule required them to file a motion for judgment on the pleadings WITHIN THIRTY (30) DAYS of the start of discovery or seek leave of court. L.R. 7.1(A)(2) (emphasis in original). Defendants failure to seek leave of Court to file

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this Motion is not innocuous.1 As described below, the Eleventh Circuits Meyer decision enunciates no new Eleventh Circuit standard. Indeed, Defendants argued the same issues vigorously in their Motion to Dismiss. See [Doc. #28-1, at pp. 20-22 of 24 and Doc. #37 at pp. 19-20 of 23]. In denying Defendants Motion to Dismiss, this Court squarely addressed Defendants argument regarding loss causation, rejecting the argument they make in this Motion. See [Doc. #38 at pp. 49-51 of 51]. This Court held that [t]he Copperfield Report and the Bloomberg story showed deficiencies in important business areas where Defendants had assured investors there were strengths, and the market reacted promptly and dramatically to the new information. Id. at pp. 50-51of 51 (emphasis added).2 Defendants seek an improper redo of their failed Motion to Dismiss, under the same legal standard and based on the same Complaint. Neither the allegations of the Complaint nor the legal standard has changed. Presumably, this Court will not upset its prior determination that the information in both the Copperfield Report and the Bloomberg story is new and revelatory of previously undisclosed issues. That ends the inquiry, and Meyer changes nothing. For their violation of

Because discovery began on or around November 13, 2012, see [Doc. #41], after December 13, 2012, Defendants were required to seek leave of Court to file this 12(c) Motion. 2 Defendants failed timely to seek reconsideration pursuant to Local Rule 7.2(E), requiring them to move for reconsideration no later than October 26, 2012.
2

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Local Rule 7.2(A)(2), for their failure timely to move for reconsideration and for their bringing the identical motion for a second time, this Court should reject this Motion in its entirety. B. Standard of Review

If this Court determines to hear Defendants Motion, however, it must accept the Complaints allegations as true, viewing them in a light most favorable to Lead Plaintiff. See Cook v. Campbell, 482 F. Supp. 2d 1341, 1345 (M.D. Ala. 2007) (citing Ortega v. Christian, 85 F.3d 1521, 1524-25 (11th Cir. 1996)). This Court should reject Defendants Motion unless it determines that Lead Plaintiff would not be entitled to relief under any set of facts that could be proved consistent with the allegations. . . . Id. (citing Horsley v. Rivera, 292 F.3d 695, 700 (11th Cir. 2002). This Court must consider no fact beyond the Complaint, the Answer and any judicially noticed facts. Id. (citing Bankers Ins. Co. v. Fla. Residential Prop. & Cas. Joint Underwriting Assn, 137 F.3d 1293, 1295 (11th Cir. 1998)). C. The Eleventh Circuits Meyer Decision Changes No Standard

In Meyer the Eleventh Circuit enunciated no new standard for pleading or proving fraud on the market as either a substitute for direct reliance or loss causation. Relying squarely on its prior holding in FindWhat Investor Group v. FindWhat.com, 658 F.3d 1282, (11th Cir. 2011), Meyer holds only that neither stale information repackaged in an opinion piece nor matters opining on an issuers

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future performance as opposed to past fraud can constitute corrective disclosures. Meyer, 710 F.3d at 1199-1200. This represents no shift in wellsettled Eleventh Circuit law. In FindWhat.com, the Eleventh Circuit stated, because a corrective disclosure must reveal a previously concealed truth, it obviously must disclose new information and merely cannot be confirmatory. FindWhat.com, 658 F.3d at 1312, n.28. This is an essential corollary to the efficient market theory:

information the market has already absorbed will not cause a change in the stock price. Id. at 1310 (citation omitted). Defendants have failed to explain how Meyer is in any way clarifying. Memo at 17. In Defendants estimation, Meyer is clarifying because it addresses a superficially similar factual scenario. As discussed at length below, however, the facts of this case are wholly distinguishable from Meyer. Indeed, Meyer sheds no new light on this Courts prior ruling that the information in the Copperfield Report was new. The main substantive flaw in Defendants argument, however, is that they cite Meyer and FindWhat.com only when convenient, ignoring the efficient market theory that provides the foundation for both opinions. Defendants cursory

argument provides no underlying analysis on the meaning of new or whether all of the facts they list in their Memo, at 15-16, are absorbed in the market price.

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This is critical, for neither FindWhat.com nor Meyer altered this Circuits wellsettled application of the efficient market theory. It is black letter law in the Eleventh Circuit that [a] corrective disclosure can come from any source, and can take any form from which the market can absorb [the information] and react. FindWhat.com, 658 F.3d 1312, n.28. 3 The reference to absorption is fundamental to the efficient market theory and the fraudon-the-market doctrine. It is beyond dispute that to avail themselves of the fraudon-the-market doctrine, investors need not even read the materially misleading statement in question.4 If investors need never read publically available

information, how is it absorbed into the market? Following Basic, Inc. v. Levinson, as it must, the Eleventh Circuit answers this question without hesitation. It clings closely to the notion that the very foundation of an efficient market is the millions of shares chang[ing] hands daily

In this context, Defendants persistent attack on Copperfields anonymity, Memo at 14-17, is wholly irrelevant. If Copperfield revealed a past fraud and acted as a conduit for the market to absorb information, its disclosures are corrective, regardless of who or what Copperfield is or is not. 4 The efficient market theory and the fraud on the market presumption based thereon alleviate investors burden to scour the landscape for information or to read an issuers filings. See Basic, 485 U.S. at 247 (1988) (citing Schlanger v. FourPhase Systems, Inc., 555 F. Supp. 535, 538 (S.D.N.Y. 1982)) (failure to read or hear an issuers statements is not fatal to a Rule 10b-5 claim so long as evidence at trial demonstrates with reasonable certainty that the fraudulent statements so permeated and polluted the market as to distort the market price by distorting the decisionmaking process by which others determined to sell, damages may be recovered); see also FindWhat.com, 658 F.3d at 1311, n.26.
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and a critical mass of market makers study[ing] available information and influenc[ing] the stock price through trades and recommendations. . . . FindWhat.com, 658 F.3d at 1310 (citing Basic, Inc. v. Levinson, 485 U.S. 224, 248 (1988)).5 Through volume of trading and analysts absorbing information for

investors, an efficient capital market rapidly and efficiently digests all available information and translates that information into the processed form of a market price. Id. (citing Basic, 485 U.S. at 244). 6 It is beyond dispute that analysts uncover, digest and transmit information to the market. That is, just because information is publically available to some degree does not mean that the market has absorbed it. The more remote the source, the more difficult it is to uncover, the longer it may take for analysts to discover and to transmit it to the market. So the question for this Circuit is not merely the public availability of information, but whether analysts have absorbed it into the market.

The Supreme Court stated [f]or purposes of accepting the presumption of reliance in this case, we need only believe that market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices. Basic, 485 U.S. at 246, n.24 (emphasis added). 6 As early as 1994, professors Barber, Griffin and Lev, filling a theoretical void left by Basic, studied factors fundamental to the fraud-on-the-market doctrine. Barber Griffin & Lev, The Fraud on the Market Theory and the Indicators of Common Stock Efficiency, 19 Iowa J. Corp. L. 285 (Winter, 1994). They found that only two factors systematically and consistently distinguished efficiently from inefficiently traded securities: volume of trade and number of analysts. Id. at 290. Analysts, the study concluded, have at their disposal broad information sources, and their forecasts are available to the investing public. Investor expectations should parallel analysts forecasts. Id. at 307-08.
6

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Key to the determination of the revelatory nature of the information in question, therefore, is when the facts that are new are reflected in the price of Ebixs securities. Meyer, 710 F.3d at 1199, n.10 (citing In re Winstar Commcns No. 01-3014, 2006 U.S. Dist. Lexis 7618, at * 48 (S.D.N.Y Feb. 27, 2006)). The immediacy with which the market absorbs information is undefinable so long as the market absorbs it rapidly and efficiently. See FindWhat.com, 658 F3d at 1310.7 The Third Circuits opinion in In re: Merck & Co., Inc. Sec. Litig., 432 F.3d 261 (3d Cir. 2005), on which Defendants rely, Memo at 6, 11, directly supports the notion that some time between public availability and absorption does not defeat the corrective nature of the disclosure just not too much time. In Merck, as here, time elapsed over two months between Mercks filing a Form S-1 with the SEC disclosing relevant information and an article in The Wall Street Journal, mining the data on which the article based its negative conclusions. Id. at 270-71. This two month lapse was too long for the Third Circuit, which ruled that . . . it is simply too much for us to say that every analyst following Merck, one of the biggest companies in the world, was in the dark. Id. at 271. The Third Circuit

Indeed, the Supreme Court never intended its ruling in Basic to be interpreted as prescribing a rigid time period for the absorption of information by an efficient market. Basic, 485 U.S. at 248, n.8 (By accepting this rebuttable presumption, we do not intend conclusively to adopt any particular theory of how quickly and completely publicly available information is reflected in market price.)
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found the information in the Form S-1 immaterial because the market did not react to it for two months. See id. at 269-71. 8 As discussed fully below, it is a matter of record in this case, however, that no analyst issued a report and no other news about Ebix was communicated to the market in the six days between Ebixs March 16, 2010 filing with the SEC of its Annual Report on Form 10-K for the year ended December 31, 2010 (2010 10K) and Copperfields completing and uploading its Report. This indicates that the market did not absorb the information in the 2010 10-K until the Copperfield Report summarized it. In Merck, the Third Circuit stood squarely behind this analysis, stating that absorption need not occur instantaneously, but rather during the period immediately following disclosure. Id. at 269. Minimally, whether the six days between 2010 10-K and the Copperfield Report without any further, related information from the Company or any analyst or press coverage that details or discusses the information in the 2010 10-K 9 is within the period of absorption

In re: Omnicom Group, Inc. Sec. Litig., 597 F.3d 501 (2d Cir. 2010), too, is inapposite. The Second Circuit, affirming the trial courts grant of summary judgment, held that accounting problems that were known to the market in May, 2001, cannot form the basis of a corrective disclosure of those very facts in June, 2002. See id. at 511-12. In this case, nothing of record shows that the issues that the Copperfield Report highlighted e.g. a tax scam and grossly overstated historic organic growth rates appeared publically before March 24, 2011. 9 It is not of record in the Merck case whether the phalanx of analysts following its stock issued reports between the filing of the S-1 on April 17 and the article in The Wall Street Journal on June 21 that caused the stock price decline. It is a matter of public record, however, that Merck filed its first quarter, 2002 earnings press
8

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is a matter for the finder of fact and should not be ruled on as a matter of law at this stage of the proceedings. See Freeland v. Iridium World Commcn, Ltd., 545 F. Supp. 2d 59, 80 (D.D.C. 2008) (whether disclosures are already known to the market is a factual determination to be decided by the jury). Indeed, Basic does not require a perfectly efficient market or require a court to draw purely academic and unfounded conclusions regarding the spread of information. Billhofer v. Flamel Techs., S.A., 281 F.R.D. 160 (S.D.N.Y. 2012). This is consistent with Meyer where the Court found, as a matter of fact, that the public information had been available for some time. Meyer, 710 F.3d at 1200. These cases indicate that the amount of time for absorption of publicly available information can vary and is a fact intensive inquiry. 10

release on April 18, 2002, so it is highly likely that analysts issued reports after Merck filed the April 17, 2002 Form S-1 giving them ample opportunity and time unlike in this case to review and absorb the information the Form S-1 contained. See Merck Current Report on Form 8-K, filed with the SEC on April 18, 2002, http://www.sec.gov/Archives/edgar/data/64978/000095012302003917/y59755ex9 9-a.txt. 10 Defendants can hardly challenge this. The Eleventh Circuit decided Meyer on February 25, 2013. Defendants responded to Plaintiffs Motion for Class Certification on March 15, 2013, choosing not to submit expert testimony on the existence of an efficient market for Ebix stock. Although Plaintiff would have and does vigorously dispute the following conclusions, such expert testimony presumably could have analyzed market absorption of information the standard in this circuit. It also could have offered opinion on whether (1) the market was inefficient for its failure to absorb information from the 2010 10-K until the Copperfield Reports wide publication, and (2) assuming market efficiency, information in the Copperfield Report was immaterial because the market did not
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Because a corrective disclosure cannot be stale information, it follows, therefore, that some conduit for absorption must exist. Meyer cannot be read and need not be read to reject the foundations of the efficient market theory that the Supreme Court imported to establish a rebuttable presumption of reliance in securities fraud cases. Defendants offer no argument or factual assertion of record that the market did not absorb the information on which the two corrective disclosures were based through the Copperfield Report and the Bloomberg article. 11 Because the information the Copperfield Report and the Bloomberg story conveyed was not stale, therefore, it constituted corrective disclosures new information that was not previously absorbed into Ebixs stock price. As such, for the following reasons, Defendants argument about loss causation fails again. D. The Copperfield Report Contains Corrective Disclosures

It is in this context that this Court must closely examine the Copperfield Report on which the Complaint is based.12 Defendants claim that each source that Copperfield mentioned was previously disclosed and publically available well

consider it with greater immediacy. Defendants stood mute. They cannot now contend that these are not issues for the fact-finder. 11 Any response from Defendants must encompass more than the conclusory argument that all publicly available data is absorbed by the market immediately and magically upon its becoming publicly available. They must concoct some argument that does not undermine the efficient market theory and the fraud-on-themarket reliance presumption that guides this Courts determination. 12 See Consolidated Amended Compliant, [Doc. #22], at 4, 247-49, incorporating the Copperfield Report.
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before the Copperfield Report was first disseminated to the market on March 22, 2011. Memo at 16. They conclude that because information included in the Copperfield Report had already been public for some time, the reason for the precipitous decline in price of Ebix common stock upon its release related to changed investor expectations and not the revelation of fraud. Id. at 17. Thus, if this Court finds that (1) only through the Copperfield Report did the market newly absorb publically available information that formed the basis of Copperfields analysis, and (2) the Copperfield Report revealed the potential of problems Ebix had not, itself, previously revealed, then the disclosures are corrective as a matter of law and it must deny Defendants Motion. 1. The Information in the Copperfield Report was not Stale

As this Court has previously ruled, the information in the Copperfield Report is new for purposes of analyzing whether the Report, itself, constitutes a corrective disclosure. [Doc. # 38, at pp. 50-51of 51]. As a matter of fact, the Copperfield Report relies on and is wholly incomplete without facts, figures and admissions from Ebixs 2010 10-K. It is not hyperbole to state that the 2010 10-K is the most important source of information for the Copperfield Report. Only if that information is stale, therefore, can this Court reconsider its prior determination that the Copperfield Report is new information. Defendants offer no argument in

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fact or law that the information in the Copperfield Report from Ebixs 2010 10-K is stale. That is so because the market did not absorb the information in Ebixs 2010 10-K until it absorbed the Copperfield Report on March 24, 2011. To be sure, certain of the information can be considered stale information that the market had already digested and factored into the price of Ebix stock, such as 2008 financial results. Other information that tended to undermine Ebixs public statements, however, was fresh to the market. Given that the Copperfield Report clearly caused a decline in market price, that information can only be seen as both new and corrective. The new and corrective information in the Copperfield Report emanates from the 2010 10-K. The Copperfield Report was first uploaded to the Copperfield website on March 22, 2011. Thus, six days passed from Ebixs filing of the 2010 10-K until the Copperfield issued its Report based, in substantial part, upon that Annual Report. That time period is critical. It is indisputable that on March 14, 2010, Ebix disseminated a press release, summarizing fourth quarter and annual 2010 results. [Doc. #22, at 120-22 of 152, 221-223]; Declaration of Jacob A. Goldberg in Support of Plaintiffs Opposition to Defendants Motion for Judgment on the Pleadings (Goldberg Decl.), Ex. B. It is also indisputable that on that same day,
12

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Ebix conducted a conference call with securities analysts covering the stock to discuss the earnings release from that morning. [Doc #22, at 122-24 of 150, 224- 225]; Goldberg Decl., Ex. C. And it is indisputable that securities analysts covering Ebix issued their reports for the fourth quarter and fiscal year 2010 no later than March 15, 2011 a day before Ebix filed its 2010 10-K. 13 Thus, no professional securities analyst incorporated information from the 2010 10-K into its report on that period. No news outlet reported on the 2010 10-K. Rather, the first analysis of the information contained in the 2010 10-K was that of Copperfield. 14 If information contained in the 2010 10-K was available in the 2010 Earnings Release or discussed in the 2010 Earnings Conference call, then it cannot be considered as new or corrective. On the other hand, if the information was not subject to any analysis, but was something Copperfield mined, cut and polished from Ebixs dense Annual Report, then Copperfield was the first analyst to point this out to the market.15

See Goldberg Decl., Ex. A (Document 45-4, Page 16 of 105). Lead Plaintiff does not submit the Werner Report for the truth of the matter, but only for the verifiable factual information therein, of which this Court can take judicial notice. The absence of analyst reports after March 15, 2011, renders the Copperfield Report the first presentation to inject the dense information of the 2010 10-K into the market after Ebix filed the Annual Report on March 16, 2011. 14 Compare Goldberg Decl., Exs. B, C and E. 15 Citing Meyer, Defendants all but concede this point. Without explanation they quote the conclusion in Meyer, rejecting the corrective nature of the disclosures in that case because the information used in the presentation had already been public for some time. . . . Memo at 12 (citing Meyer, 710 F.3d at 1200) (emphasis
13

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The Eleventh Circuit does not require that Ebixs 89-page Annual Report must be read, analyzed and absorbed in seconds, minutes or even hours after its filing. It recognizes that the foundation of the efficient market theory is that market professionals must read, absorb, compare and analyze the data for it to be incorporated into the stock price. See FindWhat.com, 658 F.3d at 1310. Earnings releases are necessarily summaries of far larger bodies of detail that regulation or other duty requires an issuer to disclose in periodic filings with the SEC. To be publicly available for the purposes of the efficient market theory, therefore, information must be more than simply public; some needle must actually synthesize and inject it into the market price. For example, in discussing Ebixs tax scam, the Copperfield Report employed data from the 2010 10-K. In particular, in discussing domestic versus foreign revenue, Copperfield included information both on Ebixs geographic mix and its domestic and foreign income before taxes. Goldberg Decl., Ex. E, at 7-8. Ebix included this information in the 2010 10-K, but omitted it from the March 14, 2011 earnings press release and did not discuss it during the March 14, 2011 earnings conference call. Compare Goldberg Decl. Ex. E (Copperfield

Report) with Goldberg Decl., Exs. B and C. Thus, the information necessary for Copperfield to perform this analysis was wholly incomplete before Ebix filed its added). This underscores that the publicly available information on which Einhorn relied in Meyer was obviously stale.
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2010 10-K on March 16, 2011. While the actual March 15, 2011 analyst reports are not yet of record in this action, they could not have analyzed or incorporated that data, as the 2010 10-K had not yet been filed. As such, the first time the market absorbed that information was from the Copperfield Report. Any other result would wholly undermine the efficient market theory on which the fraud-on-themarket doctrine is based, requiring individual investors to scour the publicly available information themselves, to uncover details. This is not the law of this Circuit. Similarly, with respect to the organic growth analysis in which Copperfield engaged, once again the Report relies on information solely available from the 2010 10-K. As Ebix had stopped providing organic growth numbers, Copperfield had to compile data from acquisition-related disclosures. It used a comparison of as reported and pro forma results from 2010. Goldberg Decl., Ex. E, at 3. Again, Ebix did not include these pro forma numbers in its March 14, 2011 earnings release or conference call. See Goldberg Decl., Exs. B and C. Nothing of record indicates that the market absorbed this information critical to the Copperfield Reports analysis prior to the issuance of the Copperfield Report. Because no intervening conduit enabled the market to absorb the information in the 2010 10-K between its filing on March 16, 2010 and March 24, 2011 when the Copperfield Report impacted the market, as a matter of law, the
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information cannot be stale. Neither FindWhat.com nor Meyer mandates any different result. 2. The Copperfield Report Revealed Potential Fraud

Still further, in Meyer, the Court ultimately found that the Einhorn presentation, while pessimistic about the future, revealed nothing about any past fraud. Meyer, 710 F.3d at 1200. When all is weighed in the balance, the Eleventh circuit ruled, we think these are statements about potential future action, not reve[lations] to the market of some previously concealed fraud or misrepresentation. Id. (citing FindWhat.com, 658 F.3d at 1311). Defendants summarily argue that the issues the Copperfield Report raised cause market shock because of changed investor expectations. Memo. at 17. This ignores the text of the report. The Copperfield Report is no a mere change of forecast, no statement about potential future action. Rather, analyzing fresh information for the market, it incorporates new facts, analyzes them and concludes that Ebix had been misleading the public. For Defendants to succeed, they must provide some

evidence from the Complaint, or of which this Court can take judicial notice, showing that the market had some inkling of the fraud that Copperfield uncovered or that the problems Copperfield uncovered were prospective. They can do neither.

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For example, Copperfield did not state that contrary to Ebixs estimates, it could not sustain organic growth at then current levels. Rather, in context of Defendants claiming that Ebix experienced organic growth in 2010 of 11%, [Doc 22, at 225], based on its analysis of figures only available in the 2010 10-K, Copperfield stated, Investors have a distorted view of the companys organic growth profile. Goldberg Decl., Ex. E at 3. We believe, Copperfield

concluded, the Company lied. Ebix had organic growth that was significantly below this figure. Id. Goldberg Decl, Ex. E at 3. No evidence exists that Ebix or anyone else challenged or otherwise hinted at the material inaccuracies of its organic growth rates and nothing supports the argument that this revelation was in any way prospective. The Copperfield Report revealed the lie of an historical fact to the market. Further, with respect to Ebixs tax strategy, once again, nothing of record indicates that the market disbelieved Ebixs reports of its historical tax rates prior to the publication of the Copperfield Report. [W]e believe aspects of Ebixs tax provision do not conform to GAAP, Copperfield wrote, and could result in a restatement (if the company had an auditor with the resources to scrutinize this accounting treatment). Goldberg Decl., Ex. E at 6. It is axiomatic that a

restatement indicates a material error in previous financial statements and not a revised forecast of future performance. See In re FirstEnergy Corp. Sec. Litig.,
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316 F. Supp. 2d 581, 595 (N.D. Ohio 2004) (By definition . . . a restatement says that the prior financial statement was false). As such, this warning of revised, historical financial results is not a statement[] about potential future action. Contrast with Meyer, 710 F.3d at 1200. Copperfield continued, however, noting Ebixs sinister and controversial transfer tax strategy to shift U.S. income abroad. Goldberg Decl. Ex. E at 7. Through this superficial series of transactions that pose no business purpose other than to avoid U.S. taxes, Copperfield expressed, Ebix was able to generate a 140% operating margin in 2010 on its foreign operations. Copperfield concluded that If the transactions are declared a sham, Ebix will face significant fines, penalties and back taxes. Id. 7. This notion of sham was completely revelatory with respect to historical Ebix tax rates. For those reasons, the Copperfield Report was both analysis of historical issues and revelatory of fraud. 16 E. The Market Absorbed Information about the Peak Lawsuit only through the Bloomberg Article

Once again, Meyer states only that in an efficient market, stale information cannot be corrective. The question is not public availability or immediacy of impact after information becomes publically available. Rather, this Court must ask
16

It is axiomatic that no single revelation need be entirely complete. Meyer, 710 F.3d at 1197 (a plaintiff need not rely on a single, complete corrective disclosure; rather, it is possible to show that the truth gradually leaked out into the marketplace through a series of partial disclosures) (citations and internal quotations omitted). Thus, the Copperfield Report need not have been complete to be revelatory.
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how and when the market absorbed the publically available information and whether the information corrected a past misrepresentation. Because the market first absorbed the information in the Peak Directors complaint when that information was reported by Bloomberg, that information is new and can be corrective. 1. The Information in the Bloomberg Article was not Stale

Appearing on June 30, 2011, the Bloomberg article revealed to the market the following new information, as detailed in the Peak Directors lawsuit against Ebix: After acquiring Peak in 2009, Ebix immediately fired five Peak employees, including the employee responsible for billing Peaks clients; Ebix subsequently reassigned the billing function to Ebix employees who did not understand Peaks operations and accounting; Ebix was consistently unable to properly bill customers, tie customer payments to specific invoices, and so Ebix was unable to determine which customers had made payment for which projects; Ex F. As a result of Ebixs insufficient internal controls and the confused state of Ebixs billing procedures, Ebix was unable timely to provide financial statements to the Peak Directors, and failed to pay the Peak Directors the Earn Out called for in the acquisition agreement between Ebix and Peak; and

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In light of these deficiencies, the internal accounting controls do not allow [Ebixs] books and records to be relied on. Ex F. As a matter of fact, the complaint in the Peak lawsuit was filed on May 24, 2011. Nothing of record, however, allows the logical leap that the allegations in the Peak complaint had been immediately incorporated into the price of Ebixs stock upon the complaints filing. Defendants argue that merely because the complaint existed on the district courts electronic filing system the market has absorbed it. Defendants, however, improperly conflate the mere public availability of information with its effective absorption into the market price. Defendants have presented neither fact nor legal authority to demonstrate as a matter of law that the market had absorbed the fact of the Peak lawsuit prior to the Bloomberg article and had incorporated the substance of the lawsuit into Ebixs stock price. As the Eleventh Circuit understood in FindWhat, an efficient market rapidly and efficiently digests new information precisely because millions of shares trade hands daily, and a critical mass of market makers study the available information and influence the stock price through trades and recommendations. FindWhat.com, 658 F.3d at 1310. Yet Defendants can point to no media report, analyst report, or public statement mentioning the Peak lawsuit prior to the publication of the Bloomberg article. Nor did Ebix mention the Peak

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lawsuit its public filings with the SEC between May 24, 2011 and June 30, 2011. 17 Though Bloomberg revealed the existence of the Peak lawsuit more than a month after the complaint was filed, the information contained in the complaint was not stale, but was in fact new to the market. Bloombergs reporting simply absorbed the suit and its underlying facts into the market. Thus, to the market, the Peak lawsuit was new information, and despite the complaint being publicly available, the market had not absorbed the substance of the Peak Directors allegations into Ebixs stock price prior to June 30, 2011. See, e.g., Winstar, 2006 U.S. Dist. LEXIS 7618, at *48 (There is no basis to conclude, as a matter of law, that the findings in the Asensio reports were already reflected in the price of Winstar securities. In fact, plaintiffs allegations that the price of Winstars stock fell in the immediate wake of the issuance of those reports belies such a conclusion.); see also FindWhat.com, 658 F.3d at 1310 (focusing on market digest[ing] that information and incorporated it into the price)(citations omitted). That the market moved significantly in response to the Bloomberg

This appears also to be true of the ConfirmNet Complaint. Plaintiffs review of Ebixs public filings and other public disclosures has uncovered no mention of the ConfirmNet lawsuit. Indeed, Ebix omitted from the 2010 10-K any reference to the ConfirmNet lawsuit, filed in April, 2010, even though it mentioned a $3 million payment to ConfirmNet in 2010, relating to meeting certain revenue objectives. See Goldberg Decl., Ex. D at 5.
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article 18 indicates that the information contained in the Bloomberg article had not been previously absorbed into the stock price, but was in fact new to the market. 19 Defendants insistence that the filing of the Peak Directors complaint instantly made the market aware of the complaints allegations misapprehends the nature of an efficient market. Basic and its progeny, including Meyer, do not, and cannot, stand for the proposition that any information somehow available in any public or quasi-public forum is immediately absorbed into the market price of a security without regard to how widely that information is disseminated. Cf.

Freeland, 545 F. Supp. 2d at 78 (corrective information must be conveyed to the public with a degree of intensity and credibility sufficient to counter-balance effectively any misleading information created by' the alleged misstatements.) (quoting In re Apple Computer Sec. Litig., 886 F.2d 1109, 1116 (9th Cir. 1989)). The courts analysis in Billhofer, 281 F.R.D. at 160 is instructive. Billhofer involved clinical trial results that were posted on a website ten days before an analysts report commenting on the results caused a drop in Flamels ADR price. Relying on Basics statement that market efficiency need not be perfect, the court held that the results of the clinical trial, like the allegations contained in the Peak complaint, were not publicly available simply because they were posted in an

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See [Doc. 22 at 139 of 152, 253] (6% drop due to Bloomberg story). The concern in Meyer for repackaging information with negative characterization, Meyer, 710 F.3d at 1199, is not present here.
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obscure location on the internet. Id. Rather, the results in Billhofer became publicly available, in a legally significant sense, when an analyst issued a research report discussing the clinical results. Id. To hold otherwise with regard to the Bloomberg article would be to charge every individual investor with the task of scouring court dockets throughout the country seeking out lawsuits related to each company in which they invest. this is precisely what Defendants reading of Meyer would require. 2. The Bloomberg Article Revealed Ongoing Fraud

As discussed above, this case differs from Meyer in important ways. As noted by the Court in Meyer, the opinions in the Einhorn presentation were merely pessimistic about future actions by the company, and were not necessarily revelatory of any past fraud. Meyer, 710 F.3d at 1200. The Bloomberg article, on the other hand, is indeed revelatory of past fraud, especially when read in conjunction with Copperfield Report.20 The Bloomberg report, in disclosing the substantive allegations of the Peak Directors lawsuit against Ebix, cast serious doubt upon Ebixs past pronouncements concerning its earnings and growth. Further, the Bloomberg

article revealed that that failures of Ebixs accounting systems and internal controls As the Eleventh Circuit made clear in Meyer, a plaintiff need not rely on a single, complete corrective disclosure; rather, it is possible to show that the truth gradually leaked out into the marketplace through a series of partial disclosures. Meyer, 710 F.3d at 1197 (citations and internal quotations omitted).
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had prevented it from accurately accounting for an earn-out owed and from paying certain receivables the former shareholders retained upon the sale of their company to Ebix. As set forth at length in the CAC, the allegations in the Peak complaint, disclosed to the market on June 30, 2011, revealed to the market the deep problems with Ebixs accounts receivable collection mechanisms, indicating substantial misrepresentations in, inter alia, Ebixs financial statements. CAC, 72-86, 190193, 203-206, 217-220, 228-232, 243-244. III. CONCLUSION For the foregoing reasons, this Court should deny, in its entirety, Defendants Motion for Judgment on the Pleadings.

Dated: July 19, 2013

Respectfully submitted, HOLZER HOLZER & FISTEL, LLC Corey D. Holzer Georgia Bar Number: 364698 Michael I. Fistel, Jr. Georgia Bar Number: 262062 Marshall P. Dees Georgia Bar Number: 105776 200 Ashford Center North, Suite 300 Atlanta, Georgia 30338 Telephone: 770-392-0090 Facsimile: 770-392-0029

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FARUQI & FARUQI, LLP /s/ Jacob A. Goldberg Jacob A. Goldberg David P. Dean 101 Greenwood Avenue, Suite 600 Jenkintown, PA 19046 Telephone: 215-277-5770 Facsimile: 215-277-5771 and Antonio Vozzolo Richard Gonnello 369 Lexington Avenue, 10th Floor New York, New York 10017 Telephone: 212-983-9330 Facsimile: 212-983-9331 Attorneys for Lead Plaintiff

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CERTIFICATE OF SERVICE AND TYPE Pursuant to Local Rule 7.1(D), the undersigned counsel for Lead Plaintiff Dan Anghel hereby certifies that the foregoing Memorandum of Law In Opposition to Defendants Motion for Judgment on the Pleadings has been prepared with a font size and point selection (Times New Roman, 14 pt.) which was approved by the Court, and that on this 19th day of July, 2013, the foregoing was electronically filed with the Clerk of Court using the CM/ECF system which will automatically send email notification to all counsel of record who have appeared in this matter.

/s/ Jacob A. Goldberg

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