General Electric ‘is insolvent’ amid $38bn accounting fraud, claims whistleblower
General Electric (GE) has been hit by claims of an accounting fraud “far more serious” than historic US cases at both Enron and Worldcom.
The US industrial conglomerate’s shares fell sharply on Wall Street after a whistleblower said the company’s financial filings were hiding $38.1bn potential losses (£31.5bn), and claimed its cash situation was far worse than had been disclosed.
“GE’s true debt to equity ratio is 17:1, not 3:1, which will undermine its credit status,” said Harry Markopolos, the whistleblower in the Bernard Madoff Ponzi scheme case, a stock and securities fraud discovered in late 2008.
The report said GE is insolvent, and that its industrial arms have a capital deficit of $20bn. It echoes concerns raised by Wall Street analysts that the firm has low cash flow, frequent accounting charges and opaque financial reports.
“GE’s $38bn in accounting fraud amounts to over 40 per cent of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds.”
In a statement GE said: “We remain focused on running our business every day and … will not be distracted by this type of meritless, misguided and self-serving speculation.”
GE said it “stands behind its financials” and operates to the “highest-level of integrity” in its financial reporting.
It said Markopolos was known to work for unnamed hedge funds that typically benefit from short selling a company’s stock.
The report included a disclaimer that the firm that drafted it, Forensic Decisions PR, will be compensated by a firm which will gain from a fall in GE’s share price.
Shares fell 11.6 per cent today.
In the last two years GE has announced more than $40 billion in asset writedowns and accounting charges. The company also has said its accounting is being investigated by the US Securities and Exchange Commission and the Department of Justice.
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