Legendary fraud investigator Harry Markopolos has leveled charges of fraud at diversified industrial giant General Electric. His allegations are outlined in a 175 page report documented at GEFraud.com. He claims, among other things, that the company is hiding $38 billion in losses tied primarily to its long term care insurance business. Markopolos best known for identifying the fraudulent practices of Bernie Madoff before regulators did so.
The company responded with a forceful statement and the CEO, H. Lawrence “Larry” Culp Jr., purchased shares of the embattled company as a signal of confidence to other investors. Board members of the company also responded with strong denials of wrong-doing.
The company’s statement read in part:
“The claims made by Mr. Markopolos are meritless. The Company has never met, spoken to or had contact with Mr. Markopolos, and we are extremely disappointed that an individual with no direct knowledge of GE would choose to make such serious and unsubstantiated claims. GE operates at the highest level of integrity and stands behind its financial reporting. We remain focused on running our businesses every day, following the strategic path we have laid out.
“Mr. Markopolos openly acknowledges that he is compensated by unnamed hedge funds. Such funds are financially motivated to attempt to generate short selling in a company’s stock to create unnecessary volatility. The report states that his company ‘entered into an agreement with a third-party entity to review an advanced copy of the Report in exchange for later-provided compensation….those positions taken by the third-party entity are designed to generate profits should the price of GE securities decrease’ and ‘members of the Company are personally in possession of securities, derivatives, and/or other financial instruments of, and/or relating to, GE, which may generate profits should the price of GE securities decrease.”
GE stock (NYSE: GE) dove dramatically on Thursday when the accusations were announced but rebounded substantially on Friday as investors processed the information. The company had already been under government investigation for its financial practices. Investors, suppliers, and customers of the company will be watching this issue carefully as it unfolds in the weeks and months ahead.