A whistleblower has accused General Electric (GE) of committing a fraud that’s even bigger than Enron.
According to Harry Markopolos, who blew the whistle on Bernie Madoff’s Ponzi scheme, GE is using the same accounting tricks as Enron to mislead investors. He stressed that irregularities in GE’s accounting were a lot more serious than reported and could add up to $38 billion.
The whistleblower, who has joined up with an unnamed hedge fund, said that the present fraud was the biggest his team has ever investigated. In his 170-page report, Markopolos wrote that GE’s accounting irregularities account for over 40% of its market value.
In return, GE Chief Executive Lawerence Culp accused Markopolos of indulging in market manipulation and denied his allegation outright. He stressed that the conglomerate has always taken allegations of financial wrongdoing seriously but dismissed the charges made by Markopolos, citing they’re guided more by malice than any proper financial analysis.
According to him, the fact that Markopolos wrote a lengthy report but never bothered to speak with a company official proves that he only wants to generate downward volatility in GE stock — instead of conduct an impartial, conscientious review.
Following the allegations on Thursday, GE shares plunged 11% to close at $8.01. Just a year back, the stock was trading at $12.
Markopolos’s team released their report after going through eight huge long-term care deals, of which GE was part of and which together account for roughly 95% of its exposure.
The report alleges that GE concealed huge loss ratios, which, if taken into account, would take its current debt-to-equity ratio of 3:1 to a dismal 17:1.
Harry Markopolos is best known for exposing Bernie Madoff, who siphoned off $65 billion and was slapped with a jail term of 150 years in 2009.