Accusation: General Electric is "bigger fraud than Enron"

Old_Joe

Following is a current article from The Guardian. It is complete as published.

The whistleblower who called out Bernard Madoff’s Ponzi scheme has accused General Electric of wide-scale fraud in a move that has sent the conglomerate’s share price into a tailspin.

In a report titled General Electric, a Bigger Fraud Than Enron, investigator Harry Markopolos claims GE is engaging in accounting fraud worth $38bn. He said GE is heading for bankruptcy and is hiding $29bn in long-term care losses.

“GE’s $38bn in accounting fraud amounts to over 40% of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds,” he writes, referencing two of the largest corporate accounting scandals in history.

After a year long investigation for an unidentified hedge fund, Markopolos writes he has discovered “an Enronesque business approach that has left GE on the verge of insolvency”. Enron, a Texas-based energy group, filed for bankruptcy in 2001, brought down by a massive accountancy scandal.

This report is “going to make this company probably file for bankruptcy”, Markopolos told CNBC’s Squawk on the Street. “WorldCom and Enron lasted about four months … We’ll see how GE does.”

In a statement GE said it “stands behind its financials” and operates to the “highest level of integrity” in its financial reporting. “We remain focused on running our business every day and … will not be distracted by this type of meritless, misguided and self-serving speculation.”

GE’s share price sank close to 15% after the report was released.

General Electric is already under investigation by the Securities and Exchange Commission (SEC), the US’s top financial watchdog, and the justice department over accounting irregularities related to its insurance and power divisions.

Once the world’s most valuable company, GE has struggled in recent years. Former CEO and chairman John Flannery was abruptly removed last year after only a year on the job and replaced by former Lawrence Culp, former CEO of the Danaher conglomerate.

On Thursday Culp dismissed Markopolos’s report. “GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple,” he said.

Markopolos is best known for his role as the whistleblower who warned the SEC about Madoff’s Ponzi scheme. Madoff was jailed for 150-years in 2009 after pleading guilty to swindling investors out of $65bn in savings.

Ted

@MFO Members This would be an interesting read if it were a proven fact. At this point it's only a rumor. By ignoring the read you won't be contributing to the rumor mill.
Regards,
Ted

Old_Joe

@Ted: I completely agree, and that's the exact reason that I made no comment on the article. It's an accusation at this point, and nothing more until proven one way or the other. For one thing, I'm a bit skeptical about the odds of a second major "find" by the same "whistleblower".

However, true or not, it certainly will be a factor in the accurate valuation of GE stock, and MFO readers deserve to be aware of that.

Tarwheel

We’ve ridden our GE stock down about 75% over the past couple years, so it’s such a small part of our portfolio now that it matters very little if it goes bust. It’s not worth selling at this point because I would have to hire an accountant to figure out our cost basis for tax returns. We’ve owned GE for 40 years and it’s our only individual stock, a gift from my wife’s grandfather. Fortunately we sold shares over the years for down payments on homes, so it’s paid off in the long term.

LewisBraham

Get a copy of the report here: https://gefraud.com/?mod=article_inline

davidrmoran

sure, but it's not like the guardian is like fox or drudge or breitbart ... also it's markopolos, for heaven's sake

Charles

Market certainly reacted like it's true, which would be a heart breaker. GE makes great turbine engines!

bee

PRWCX has been a buyer of GE as of late and David Giroux commented that he wouldn't be surprised if it was his best performing holding over the next few years. I'd like to hear his take on these accusations.

Mentioned here:
https://mutualfundobserver.com/discuss/discussion/47062/consuelo-mack-s-wealthtrack-guest-david-giroux-manager-trp-appreciation-fund-prwcx

PRESSmUP

I find it odd that the author chose not to approach GE for comment or clarification regarding the many points outlined in the report. It's almost like damaging GE was the objective.

Old_Joe

"It's almost like damaging GE was the objective"

Yes, I had unease in that direction also. A bit like the firefighter who turns out to be an arsonist. GE is claiming "market manipulation". Stranger things have surely happened.

That is exactly why I chose to title this post as "Accusation", rather than suggesting that it was a proven fact.

LewisBraham

Read the disclaimers to the report, one of them involves short-selling, so yes a vested interest in seeing the stock decline. Yet bear in mind that anyone invested in a company--long or short--has a "vested interest." It comes down to who has the better more accurate, thorough analysis. I do find it strange when people attack short sellers for conflicts of interest or misleading information but almost never do the same for investors in a company who speak publicly about how great the company is.

Old_Joe

Very true.

Charles

@bee. Me too.

bee

GE stock price Jumps...3% of PRWCX is GE stock.
https://bnnbloomberg.ca/ge-jumps-as-new-boost-to-cash-flow-outlook-bolsters-turnaround-1.1339891