General Electric shares dropped more than 11% Thursday after the conglomerate was accused of using accounting loopholes to hide $38B in losses.
The company’s CEO, Larry Culp, told CNBC the claims are misleading and represent an attempt at “market manipulation.”
But it’s hard to shake a dang celebrity accountant who’s calling your storied, multibillion-dollar conglomerate “a bigger fraud than Enron.”
May the street-cred set you free
Harry Markopolos (pronounced Marco-polos), the famed accountant responsible for getting Bernie Madoff thrown in the slammer, published the report, in collaboration with an unnamed hedge fund, that claims GE is shielding its costs and liabilities from investors in its financial statements.
The research — first covered by the WSJ — alleges that the issues lie within GE’s insurance business, and suggests that the company doesn’t have the funds to cover the claims on long-term care policies, which help people pay for nursing homes and assisted living options.
Has the GE bulb finally burned out?
The company has been in a floating freefall since its heyday in the ’90s, when stock hit $51 per share.
In the past 4 years the company has churned through 3 separate CEOs as it struggled to execute much of its lifeboat strategery toward the future — like revamping its floundering iconic lightbulb business, building a seperate digital division, and selling off its actually successful appliance business.
GE’s stock dropped 33% in 2018, bringing it to about $12, down from $30 in 2017. Its shares are currently around $8 since the dip.
Put it on the tab
GE’s accounting practices are currently being scrutinized by the SEC and the DOJ regarding a $6B charge to its insurance arm and a $22B write-down to its quick-burning oil and gas unit.
In regards to Markopolos’ allegations, GE claims it isn’t misleading investors and that it has a “strong liquidity position.”
Nonetheless, Markopolos maintains the alleged fraud is “bigger than Enron and WorldCom combined.” If true, the $38B would add up to more than 40% of GE’s market cap.
