A man who warned about Bernie Madoff’s Ponzi scheme claims GE is hiding $38 billion in losses. The company denies this, but its history of opaque reports and belated write-offs puts it on weak ground, writes tombuerkle.
Shares in General Electric fell as much as 13% in morning trading on Aug. 15 after a forensic accountant claimed the company had committed accounting fraud to hide $38 billion in potential losses and that its cash situation was much worse than it has disclosed.
Harry Markopolos, who tried to alert U.S. regulators to the Ponzi scheme orchestrated by stock trader Bernie Madoff, estimates that GE would need to provide an additional $29 billion in reserves for losses on reinsurance policies its financial-services unit wrote for long-term care insurers. The company took a $6.2 billion charge to cover those liabilities in January 2018.
- He also claims the company should have recognized an additional $9.1 billion loss when it reduced its stake in oil-field services company Baker Hughes to 50.4% in November 2018. GE recorded a $2.2 billion loss on that $4 billion sale in its 2018 earnings. If the company had accounted for the lower value of Baker Hughes, its cash flow from operating activities would have been $495 million in 2018, compared with the $2.3 billion GE reported, Markopolos claimed.
In a statement, GE called Markopolos’s report “meritless” and said it “operates at the highest level of integrity and stands behind its financial reporting.” Markopolos said he had provided an advance copy of his report to an unidentified third party who is betting that the prices of GE securities will decline, in exchange for “later-provided compensation.”
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