GE stock fell sharply on Thursday after a whistleblower report accused the company of perpetrating a “bigger fraud than Enron”, according a website set up specifically to address the issue, gefraud.com.
The report’s author, Harry Markopolos, was also a whistleblower during the Enron fraud.
In the report, Markopolos alleges that GE, which the website refers to as “GEnron”, is hiding serious financial problems. In a statement to the media, GE emphatically denied ever speaking to or contacting Markopolos. While GE had not yet read the report at the time of the statement, it denied the allegations it had heard.
“While we can’t comment on the detailed content of a report that we haven’t seen, the allegations we have heard are entirely false and misleading,” GE’s statement read, as reported by CNBC.
Specifically, the report alleges that over the years, GE has changed its financial statement reporting formats every few years to make it nearly impossible to compare the numbers year by year in an effort to conceal unfavorable financials. GE has for decades, according to Markopolos, provided top line revenue and bottom line profits only, leaving out COGS, SG&A, R&D and corporate overhead. The fraud may go as deep as $38 billion, the report says.
The report also alleges that there are issues with the way GE handles its accounting of its oil and gas segment, Baker Hughes. GE is already facing a lawsuit that was announced earlier this week over the way it handled the nearly $8 billion merger with its oil and gas segment. Institutional investor Tri-State Joint Fund claims that Baker Hughes was led falsely into the deal by using “false unaudited financials” according to Bloomberg Law. Today’s report alleges that GE attempted to hide its $9.1 billion loss over the Baker Hughes transaction by some fancy accounting footwork that violates FASB accounting standards.
GE is now on the “verge of insolvency” according to gefraud.com, despite its best efforts to conceal the matter from its shareholders.
In total, the 125-report paints a grim picture of GE’s financials, but there according to the disclosures, there is additional information that was not disclosed in the public version of the report, which was instead forwarded to law enforcement agencies.
While grim, the fine print of the report’s disclosures contains the statement that the report, made public on August 15, was given first to a third-party in exchange for compensation that was “based on the percentage of the profits from the third-party entity’s positions in the securities, derivatives, and other financial instruments of, and/or relating to, General Electric Company (‘GE’) (NYSE: GE). Those positions taken by the third-party entity are designed to generate profits should the price of GE securities decrease.”
And decrease they did. By 2:24pm EDT, GE stock had fallen $1.50 per share (-11.63%) to $7.98.
By Julianne Geiger for Oilprice.com
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