GE Accounting Scandal

ACCOUNTING Episode 1: GE Accounting Scandal

Francis Scialabba

Shonda Rhimes appears to have directed yesterday’s biz news, because a bombshell whistleblower report targeted GE’s (-11.30%) accounting practices.  Adding to the intrigue: The report was released by Harry Markopolos, a forensic accountant who also raised the alarm about Bernie Madoff’s Ponzi scheme.  The allegations  Markopolos alleged that GE’s flawed accounting practices… Are “a bigger fraud than Enron”  Add up to $38 billion in fraud, or around 40% of GE's market value  Mean GE’s debt-to-equity ratio would go from the 3:1 it reported at the end of Q2 to a whopping 17:1 if reported properly  Markopolos also said the industrial conglomerate would need to boost its insurance reserves by $18.5 billion in cash and might have to file for bankruptcy.  The “how dare you, sir” GE denied all of it, saying the company has a “strong liquidity position, committed credit lines, and several executable options to monetize assets," plus it takes vitamins every morning.  GE is currently being investigated by the SEC and DOJ over potential accounting issues related to its insurance and power divisions. It has denied any accounting fraud and says it is working with investigators.  Here’s where it really reminds us of Scandal  Markopolos said he and his colleagues are working with an unnamed hedge fund that’s shorting GE stock, leading CEO Larry Culp to accuse Markopolos of trying to profit off the accusations.   The WSJ points out that if that’s the angle, Markopolos’s timing could have been better. GE stock dropped from $30 to $7 from early 2017 to the end of 2018 as the company tried to streamline a bloated business.  Looking ahead...Markopolos said his group is planning to take its findings to the SEC. Meanwhile, Culp bought $2 million of GE stock yesterday to demonstrate his confidence in the company.