A whistleblower on Thursday has accused General Electric (GE) of using accounting tricks to mask the extent of its financial problems and named it a bigger fraud than Enron. Famous for blowing the whistle on Bernie Madoff’s Ponzi scheme in 2008, Harry Markopolos said in a report that was released on Thursday that GE was hiding nearly 40 billion dollars of losses in its insurance business. He further added that this is the largest case of accounting fraud he and his team have ever investigated.
Referring to the scandals that eventually helped bankrupt energy giant Enron in 2001 and long-distance telco WorldCom in 2002, Markopolos wrote in the report, “In fact, GE’s 38 billion dollars in accounting fraud amounts to over 40 percent of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds.”
After this, GE shares fell 11 percent, to 8.01 dollars on Thursday. The stock traded near 12 dollars a year ago and 30 dollars at the start of 2017.
Several comparisons to Enron has been made by Markopolos in his report and also on a new website with the URL www.gefraud.com. He accused GE of using what he dubbed the GEnron’ playbook.
After reviewing GE’s financial statements from 2002 to 2018, researchers claimed that the company does not have enough cash to cover the claims on long-term care policies, which help people pay for nursing homes and assisted the living.
According to the report, GE’s reported earnings when policyholders were young and not filing insurance claims, but then miscalculated how much it would have to spend to issue those benefits. According to the research, GE does not have adequate reserves to cover the liabilities on its long-term care business, even though it boosted those reserves by 15 billion dollars last year.
Meanwhile, GE strongly denied Markopolos’ allegations. GE said in a statement, “The claims made by Markopolos are meritless. It has never met, spoken to or had contact with Markopolos, and we are extremely disappointed that an individual with no direct knowledge of GE would choose to make such serious and unsubstantiated claims.”
Co-founded by Thomas Edison in the late 19th century, GE evolved into an iconic American company with a track record of innovation. The company has expanded itself across a range of industries over the time with products including home appliances, medical devices and the airplanes.
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