A private financial investigator is targeting one of the biggest corporations in the US, claiming that General Electric reportedly concealed over $38 billion in losses.
Blue-chip stock will suffer
A new 175-page report by Harry Markopolos, who earlier flagged warnings about the $65 billion Ponzi scheme by Bernard Madoff, said that GE has a huge accounting scandal to hide. He accused that the company is hiding about $38.1 billion potential losses, which means that the company has a worse cash situation than what it shows.
The report titled, ‘General Electric: A Bigger Fraud Than Enron’ states,
“The $38bn in accounting fraud amounts to over 40% of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds.”
It focuses extensively on the oil industry services business and the long-term care insurance business of the company.
Markopolos appeared on CNBC to talk about his report. GE stock suffered because of his report, and the company lost 15% share valuation on Thursday. The overall 11% fall during the day was the worse one-day slump for the company in 11 years.
However, the company calls the report, “meritless, misguided and self-serving speculation”. GE CEO, Lawrence Culp even said that Markopolos is making false statements and he did not fact check with the company before publishing the report. As a sign of faith in the company, Culp went on to buy $2 million worth of shares in the company. Markopolos, however, said that an advance copy of the report was sent to a hedge fund and he is set to receive a percentage of profits from share price movements.
Is the report being upheld?
Some analysts don’t think that the report is 100% accurate. One among them is Bronte Capital co-founder John Hempton, who called it a silly report. However, this doesn’t mean that GE follows transparency in its financial statements. Wall Street has issues with the company’s opaque reports, its drying cash flow, and massive asset write-downs. In fact, these write-downs and account charges have cost the company over $40 billion in the past two years alone. Not only this, its accounting practices are already under investigation by the Department of Justice and the Securities and Exchange Commission.
Culp talked to reporters and said that Markopolos’ report was filled with factual errors and it was simply an attempt at market manipulation. He called out the fact that the investigator gained from the stock price movement.