Latest News

  • Home
  • Global
  • General Electric "Bigger Fraud Than Enron", Alleges Report. Shares Fall
General Electric "Bigger Fraud Than Enron", Alleges Report. Shares Fall
16 August 2019 IST
General Electric "Bigger Fraud Than Enron", Alleges Report. Shares Fall

A whistleblower who warned regulators about Bernie Madoff released a report alleging that General Electric is short on cash and hiding $38 billion in losses, calling it a "bigger fraud than Enron."

 
 

General Electric shares plunged Thursday after a whistleblower accused the conglomerate of using accounting tricks to mask the extent of its financial problems and called it "a bigger fraud than Enron."
Harry Markopolos, who alerted regulators about Bernie Madoff, published a report online Thursday that said GE's accounting irregularities added up to $38 billion. The investigator, who is collaborating with an unnamed hedge fund, says GE understated its costs and liabilities and misled investors in its financial statements.
 
The research, first reported by The Wall Street Journal, alleges that the problems are focused on GE's insurance business, asserting that the company is short on cash.
 
"GE will always take any allegation of financial misconduct seriously. But this is market manipulation - pure and simple," chief executive Lawrence Culp said in a statement. "The fact that he wrote a 170-page paper but never talked to company officials goes to show that he is not interested in accurate financial analysis, but solely in generating downward volatility in GE stock so that he and his undisclosed hedge fund partner can personally profit."
 
GE shares fell 11 percent, to $8.01, on Thursday. The stock traded near $12 a year ago and $30 at the start of 2017.
 
Researchers who reviewed GE's financial statements from 2002 to 2018 alleged that the company does not have enough cash to cover the claims on long-term care policies, which help people pay for nursing homes and assisted living.
 
The report says GE reported earnings when policyholders were young and not filing insurance claims, but then miscalculated how much it would have to spend to issue those benefits. GE does not have "adequate reserves" to cover the liabilities on its long-term care business, even though it boosted those reserves by $15 billion last year, according to the research.
 
Markopolos, who declined to comment for this article, says GE is understating the losses it could face on insurance claims, adding that they will rise "at an exponential rate" and put the company at risk of bankruptcy unless it finds a way to cover the costs.
 
"GE operates at the highest level of integrity and stands behind its financial reporting. We remain focused on running our businesses every day, following the strategic path we have laid out," the company said in a statement. It called the claims "meritless," adding that no one at the company has ever met, spoken to or had contact with Markopolos.
 
GE said that it has the reserves to support its insurance portfolio and that it has a "strong liquidity position."
 
Markopolos is a former financial analyst who spent nearly a decade investigating Bernie Madoff's business before his Ponzi scam - the largest in U.S. history - was discovered in 2008. The researcher says he warned the U.S. Securities and Exchange Commission about his Madoff investigation but was ignored. Markopolos is sharing his GE findings with regulators and reserved some information to be shared exclusively with law enforcement, according to the report.
 
The SEC declined to comment.
 
GE's accounting practices are being scrutinized by the SEC and the Department of Justice regarding a $6 billion charge to its insurance business and a $22 billion write-down to its struggling power division.
 
 

 
 

Co-founded by Thomas Edison in the late 19th century, GE evolved into an iconic American company with a track record of innovation. Over time, its reach expanded across a range of industries, with products including home appliances, medical devices and airplanes.
 
Former CEO Jack Welch became a household name as the company flourished, peaking in 2000 with a market value of $594 billion. But it has been contracting for decades, burdened by debt and tainted by a probe into its accounting practices. The company, which now has a market value of about $78 billion, is now being lead by its second CEO since Jeffrey Immelt stepped down from the job in 2017.
 
Markopolos told CNBC that the GE review came at the request of a "mid-sized U.S.-based hedge fund," but he declined to name the firm. He said he will get a "decent percentage" of any profits the hedge fund earns from betting against the conglomerate.
 
He also says the alleged fraud is "bigger than Enron and WorldCom combined." At $38 billion, if true, it would add up to more than 40 percent of GE's market capitalization.
 
Enron had been a $100 billion-a-year behemoth and Wall Street superstar before the Houston energy trader was exposed as a "mind-numbingly complex" web of financial maneuvering and hidden debts. The scandal led to its 2001 implosion; the prosecution of several top executives, including Kenneth Lay and Jeffrey Skilling; and losses in excess of $60 billion. WorldCom, meanwhile, disclosed in 2002 that an internal audit unearthed $3.8 billion in inflated profits. It filed for bankruptcy soon after and several executives were convicted of fraud and other crimes.
 
Markopolos takes issue with the way GE recorded losses when it sold part of its investment in Baker Hughes, its oil and gas business. The conglomerate reduced its stake in the business to 50.2 percent from 62.5 percent, recording a loss of $2.2 billion. Markopolos claims the company is understating its true losses by continuing to treat Bakers Huges as a non-controlling interest instead of reducing it to an "investment," which would have required GE to stop including earnings from Baker Hughes as part of its own.
 
GE said in statement that as a majority shareholder of Bakers Hughes, it is required to report its earnings in consolidated financial statements. The company also disclosed to investors in July that it would have to had to record an additional loss of $7.4 billion if it had let its ownership stake fall below 50 percent, according to SEC filings.
 
GE said Markopolos is working with hedge funds that are "financially motivated to generate short selling in a company's stock to create unnecessary volatility."

 
 
 
 
 

Related Topics

 
 
 

Trending News & Articles

 Article
'Worse than prison': A rare look inside China's detention camps to 'brainwash' Muslims

ALMATY: Hour upon hour, day upon day, Omir Bekali and other detainees in far western China's new indoctrination camps had to disavow the...

Recently posted . 160K views . 1 min read
 

 Article
What The Shape Of Your Belly Button Says About Your Health

If you have payed attention to the belly buttons of people on the beach or the members of your family, you have probably noticed that they have different shapes and...

Recently posted . 5K views . 2 min read
 

 Article
Top 10 Best Gym Equipment Brands in India 2018

Body fitness is one thing that everyone wants to maintain irrespective of age. Going to the gym and doing some great exercise always helps to maintain your body fit...

Recently posted . 3K views . 2 min read
 

 Article
Top 10 Most Poisonous Fishes In The Sea World

The wonders of the world’s oceans are just absolutely fantastic and totally limitless. Truly, the depths of the sea reveal marine and aquatic flora and fauna ...

Recently posted . 2K views . 3 min read
 

 
 

More in Global

 Article
8 Free Ambient Noise Sites That'll Transform Your Open Workspace Into a Private Office

When you’re buckling down to get through a hefty to-do list, the environment that you’re in has a huge impact on your ability to concentrate and work ef...

Recently posted. 418 views . 2 min read
 

 Article
Top 10 Biggest Insects in the World

An insect is a very small animal with exoskeleton or a hard, shell-like covering on the outside of its body made up of chitin. They found in everywhere in the wor...

Recently posted. 471 views . 2 min read
 

 Article
XRP Lauded by WTO as it Believes Cryptocurrencies can Transform Global Commerce

While the regulatory hurdles will take some time to clear the way for cryptocurrencies, many global organizations have been found positively commenting on cryptocur...

Recently posted. 536 views . 2 min read
 

 Video
Signs You've Found an Ideal Husband



Recently posted . 434 views
 

 Reviews
The Best 5 Hiking Backpacks in India – Reviews & Buying Guide



Recently posted . 625 views . 140 min read
 

 Article
Smartphone use such as social media, texting may make teens unhappy

Researchers from the University of Georgia in the US, analysed data from a survey of over a million US teens.

Recently posted. 366 views . 0 min read
 

 Article
Caught on camera: Thousands of starlings flying in formation make for a spectacular sight

It is called murmuration, and that sounds about right.

Recently posted. 470 views . 0 min read
 

 
 
 

   Prashnavali

  Thought of the Day

Once you replace negative thoughts with positive ones, you'll start having positive results.
Willie Nelson

Be the first one to comment on this story

Close
Post Comment
Shibu Chandran
2 hours ago

Serving political interests in another person's illness is the lowest form of human value. A 70+ y old lady has cancer.

November 28, 2016 05:00 IST
Shibu Chandran
2 hours ago

Serving political interests in another person's illness is the lowest form of human value. A 70+ y old lady has cancer.

November 28, 2016 05:00 IST
Shibu Chandran
2 hours ago

Serving political interests in another person's illness is the lowest form of human value. A 70+ y old lady has cancer.

November 28, 2016 05:00 IST
Shibu Chandran
2 hours ago

Serving political interests in another person's illness is the lowest form of human value. A 70+ y old lady has cancer.

November 28, 2016 05:00 IST


ads
Back To Top