Photo: Stephane Mahe/Reuters
A famous fraud hunter takes aim at G.E.
Harry Markopolos raised the first alarms over Bernie Madoff’s Ponzi scheme. Now, Mr. Markopolos has published a report claiming that accounting fraud “bigger than Enron and WorldCom combined” lurks within G.E.
• The 170-page report alleges that the conglomerate’s accounts conceal $38 billion in fraud, equivalent to 40 percent of its value.
• That, he says, stems from understated liabilities in its insurance business, misrepresentation of its cash situation, and improper accounting for its acquisition of a stake in the oil field services provider Baker Hughes.
• “I think that they’re a bankruptcy waiting to happen,” Mr. Markopolos told CNBC.
• “Mr. Markopolos said he and his colleagues are working with an undisclosed hedge fund, which is betting G.E.’s share price will decline,” the WSJ reports, and his group “will receive a portion of any trading proceeds.”
• He also submitted the report to the S.E.C. and the Department of Justice. Those agencies give tipsters a cut of any financial penalties resulting from investigations, as part of a program to encourage whistle-blowing.
GE vigorously denied the claims.
“This is market manipulation — pure and simple,” G.E.’s C.E.O., Larry Culp, said in a statement. “Mr. Markopolos’s report contains false statements of fact,” he wrote, adding, “He is not interested in accurate financial analysis but solely in generating downward volatility in G.E. stock so that he and his undisclosed hedge fund partner can personally profit.”
The company’s shares plummeted on the news,
falling by 8 percent to a seven-month low. Mr. Culp responded by buying $2 million of G.E. stock.
G.E. is already under investigation by the S.E.C. and the Justice Department
for potential accounting problems within its insurance holdings and power division. It has denied accounting fraud in that case.
Source: The New York Times
The Serious K 