SEC is probing GE accounting
Shares of GE plummeted again yesterday after the company told investors the SEC is investigating its accounting practices following a $15 billion insurance charge revealed last week, in the latest bad news to hit the Boston-based industrial conglomerate.
“It’s not terribly surprising that the SEC would want to take a look, particularly in light of the sheer size of the charges they took for the insurance claims,” said Jim Corridore, an analyst with CFRA Research. “It’s never good for your company or your stock when the SEC is investigating your accounting.”
Last week, GE told analysts it underestimated the amount its long-term health insurance division will have to pay by the tune of $15 billion. That will have an impact of $6 billion after writing off the loss for tax purposes, the company said. Yesterday, GE Chief Financial Officer Jaime Miller said the SEC has opened an investigation.
“We’ve been notified by the SEC that they’re investigating the process leading to the insurance reserve increase and the fourthquarter charge as well as GE’s revenue recognition and controls for long-term service agreements,” Miller said on a conference call with analysts yesterday. “We are cooperating fully with the investigation, which is in very early stages.”
Miller downplayed the investigation, saying the company has not seen anything that is cause for concern.
“There is nothing here that I am overly concerned about,” Miller said. “If I see something, we’ll deal with it. But I don’t see anything at this point.”
Shares of GE fell more than 2.5 percent yesterday, and have fallen nearly 6 percent over the past week. The surprise expense and the SEC investigation are just the latest in a string of high-profile challenges for the company. Last week, GE chief executive John Flannery said the company may consider breaking up as it struggles to turn itself around. Last year, news emerged that former CEO Jeff Immelt had a second, empty private jet that followed him around on some business trips in case his primary jet had mechanical problems.
“We can’t be certain that prior management purposely misled investors, but we certainly believe there were ethical lapses that deserve attention,” said Scott Davis, an analyst with Melius Research.
GE also reported fourthquarter earnings yesterday, slightly missing analyst estimates. Flannery has said GE is in the process of developing a plan to improve the conglomerate’s struggling businesses, including its power division.
“We’re moving very quickly to tackle these issues and we’re doing so in the context of running our businesses for the long term,” Flannery told analysts. “Our responsibility is to reshape this company and to ensure GE matters as much in the next century as it has in the past one.”