General Electric Co GE.N shares fell as much as 15% on Thursday after fraud investigator Harry Markopolos, who blew the whistle on Bernard Madoff's Ponzi scheme, said GE was concealing deep financial problems, prompting a sharp rebuke from GE's new CEO. 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 claims made by Mr. Markopolos are meritless", a GE representative told Markets Insider, adding: "GE operates at the highest level of integrity and stands behind its financial reporting. Such funds are financially motivated to attempt to generate short selling in a company's stock to create unnecessary volatility", GE said.
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".
" Besides, followed by the reveal of Markopolos report over fraudulent activities on 127-year-old U.S. utility conglomerate, shares of General Electric Company plummeted 11.30 percent to $8.01 per share on Thursday's (August 15th) market closure after falling as much as 13.34 percent during midday USA trading hours".
Shares in USA industrial conglomerate General Electric Company (NYSE:GE) plunged 11.3% yesterday to close at US$8.01 following accusations from a noted short-seller of "accounting fraud". "After we accounted for the $38 Billion in accounting fraud GE's debt to equity ratio goes from the 3:1 ratio it reported at the end of the 2nd quarter 2019 to a woefully deficient 17:1".
Baker Hughes shares also rose as much as 1.69 percent Friday. GE apparently left out some very important details in its reports, including the cost of goods, administrative expenses, corporate overhead allocations, and research and development expenses. GE shares have lost more than 40% of their value since June 2018, when the company announced a massive restructuring and was booted from the Dow Jones Industrial Average.
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Specifically, the report alleges that over the years, GE has changed its financial statement reporting formats every few years to make it almost impossible to compare the numbers year by year in an effort to hide unfavorable financials.
"Instead of putting in the amount of employees they promised the state, they're putting in only a percentage of those employees", Markopolos said.
A prominent short seller, John Hempton of Bronte Capital, dismissed Markopolos's analysis as "silly".
Markopolos' repeated efforts to blow the whistle on Madoff's very big Ponzi scheme were rebuffed by the Securities and Exchange Commission for eight years, allowing the fraudster to milk his customers out of billions more before the regulator finally took action.
After Madoff pleaded guilty to swindling investors out of $65bn in savings, he was jailed for 150 years in 2009. Heymann believes that the worst has passed, and GE's financial health is "gradually beginning to improve". She said Markopolos' claims do not "reflect the GE I know". "I'm trying to figure it out". "But this is market manipulation - pure and simple", he said.