NEW YORK (AFP) - General Electric shares plunged Thursday after an accounting expert accused the company of fraud, an allegation the industrial giant strongly denied and said was tainted by the accuser’s financial incentives.
Harry Markopolos, who warned securities regulators about the Bernard Madoff investment scheme years before that firm went under, accused GE of “running decades-long accounting fraud,” according to information on gefraud.com, a website set up by Markopolos and his associates.
Markopolos told the Wall Street Journal that GE will need to bolster its insurance reserves by $18.5 billion in cash and should have booked billions in losses in its oil and gas division.
He is working with an unnamed hedge fund that is betting on GE’s share price to fall, an investment tactic known as “shorting” a stock, and he gave the fund access to his research before it was published.
He also will receive a share of trading proceeds, the Journal reported.
GE - which already had disclosed investigations by US regulators into the company’s accounting -- called the claims “meritless,” and stands behind its financial reporting.
Noting his financial incentive to get the share price to fall, the company also said the Markopolos report contains inaccuracies showing he did not check his information.
“GE will always take any allegation of financial misconduct seriously,” Chief Executive Lawrence Culp said in a statement. “But this is market manipulation - pure and simple.”
“The fact that (Markopolos) wrote a 170-page paper but never talked to company officials goes to show that he is not interested in accurate financial analysis, but solely in generating downward volatility in GE stock so that he and his undisclosed hedge fund partner can personally profit.”
GE previously disclosed that it is being investigated by the Securities and Exchange Commission over its revenue recognition practices in a probe that was expanded in January 2018 after the company announced a US$6.2 billion charge to add reserves to its reinsurance business.
The Justice Department also is investigating the matter. GE has said it is cooperating with the probes.
Markopolos “is selectively front-running widely reported regulatory processes and rigorous investigations without the benefit of any access to GE’s books and records,” said Leslie Seidman, the chair of GE’s audit committee. “I urge readers to carefully consider the motivation behind this report as well as the reliability of the analysis underlying his opinions.”
The report comes as GE struggles to recover from a downturn in its power generation business that has marred results for more than two years.
The company reported a second-quarter loss of US$61 million last month due to US$744 million in one-time accounting costs connected to its electricity grid business.
GE shares tumbled 11.8 percent to US$7.97 in afternoon trading.