GE ‘FRAUD’ SHOCK
Analyst claims cooked books, Co. blasts report
The financial analyst famous for blowing the whistle on Ponzi king Bernard Madoff has now set his sights on General Electric.
Harry Markopolos, who repeatedly rang alarm bells about Madoff only to be ignored by regulators, sent shares of GE down 11 percent Thursday, to $8.01, after he issued a scathing report calling the lightbulb maker “a bigger fraud than Enron.”
“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.
The report claims GE has been cooking the books for 24 years — going back to when Jack Welch was chief executive. It also takes shots at exchief Jeff Immelt, saying he could have solved the company’s problems but bought “value-destroying” companies instead.
Markopolos wrote the report on behalf of an undisclosed hedge fund that is shorting the stock. He stands to profit off the hedge fund’s gains, he said in disclosure forms that came attached to the report.
Markopolos also submitted his findings to the Securities and Exchange Commission and said he stands to profit if his findings result in a financial penalty from the regulator.
GE blasted the report as “market manipulation.”
“Such funds are financially motivated to attempt to generate short selling in a company’s stock,” GE said.
“GE will always take any allegation of financial misconduct seriously. But this is market manipulation — pure and simple,” GE Chief Executive Lawrence Culp added.
Still, the stock plummeted by $1.02 — its biggest percentage drop since 2008.
Markopolos’ fraud allegations center on GE’s longterm health care reinsurance units, a part of GE Capital, and a 2017 investment by GE in Baker Hughes, which combined the two companies’ oil and gas operations into an entity called BHGE.
The whistleblower said GE failed to fund adequate reserves to offset future longterm care liabilities, despite booking decades of premiums as “earnings” when its policy holders were young and not filing claims.
This failure forced GE to take a $15 billion reserve hit last year to account for the 14 percent of claims already filed.
“GE’s LTC losses will continue rising at an exponential rate until it either files for bankruptcy protection or finds some way to out-earn its LTC liabilities,” Markopolos wrote.
“GE utilizes many of the same accounting tricks as Enron did, so much so that we’ve taken to calling this the ‘GEnron’ case,” Markopolos wrote in the report.
“When you see that many dollar adjustments in such a short time frame that’s not house-cleaning, it’s a red flag,” he wrote.
Markopolos went to the SEC three times — in 2000, 2001 and 2005 — with data questioning Madoff’s toogood-to-be-true returns.
Madoff was revealed in 2008 to have been running a massive Ponzi scheme.
Victims included actors Kevin Bacon and Kyra Sedgwick, as well as Mets majority owner Fred Wilpon.
Markopolos’ story was featured in the 2010 film “Chasing Madoff.”