RE: GE very concerning16 Aug 2019 10:10
General Electric shares saw their biggest drop in more than a decade Thursday after Madoff whistleblower Harry Markopolos targeted the conglomerate in a new report, accusing it of issuing fraudulent financial statements to hide the extent of its problems.
A website has been set up to disseminate the report, www.GEfraud.com, where Markopolos calls it "a bigger fraud than Enron." The financial investigator, who was probing GE for an unidentified hedge fund, writes that after more than a year of research he has discovered "an Enronesque business approach that has left GE on the verge of insolvency."
"My team has spent the past 7 months analyzing GE's accounting and we believe the $38 Billion in fraud we've come across is merely the tip of the iceberg," Markopolos said in the 175-page report. Markopolos alleges that GE has a "long history" of accounting fraud, dating to as early as 1995, when it was run by Jack Welch.
"It's 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."
The stock closed 11% lower in its biggest drop since April 2008, ending the day at $8.01 per share.
GE's CEO issued a statement calling the allegations false, and driven by market manipulation.
"GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple," Lawrence Culp, chairman and CEO of GE said in a statement. "Mr. Markopolos's report contains false statements of fact and these claims could have been corrected if he had checked them with GE before publishing the report."
Culp said the fact that Markopolos never talked to company officials before publishing the report "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."
Enron, which had more than $63 billion in assets at the time, declared bankruptcy on December 2001 in what was then the largest corporate collapse in U.S. history. Roughly 4,000 Enron employees lost their jobs following its collapse. The energy company's downfall began with the discovery of accounting irregularities. Twenty-one people, including former CEO Jeffrey Skilling, were convicted in the scandal, and accounting firm Arthur Andersen was forced out of business after it was found guilty of obstruction of justice.
A year after the Enron scandal broke, long-distance phone company WorldCom, filed for bankruptcy after revelations of an accounting fraud. It had $107 billion in assets at the time.
One area of Markopolos' case focuses on GE's long-term care insurance unit, for which the company had to boost reserves by $15 billion last year. By examining the filings of GE's counterparties in this business, he alleges that GE is hiding massive losses that will only increase as policyholders grow older. He claims that GE h
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