NEW LOW OBSERVER

Summary

• General Electric has been in decline at least since 2000.
• After 19 years of persistent decline, Harry Markopolos claims that GE is committing accounting fraud.
• GE offers up their defense of the Markopolos charges saying they are “meritless.”
• Andrew Left of Citron Research rejects the assertions made by Markopolos.
• The SEC has already said that Andrew Left is wrong about GE.

Review

On August 28, 2000, the closing high for General Electric (GE) was $57.69.  On August 14, 2019, the closing price for General Electric was $9.03.

The Charge

In a republished Bloomberg article written by Katherine Chiglinsky, Richard Clough and Jack Pitcher found at Yahoo!Finance, Harry Markopolos claims that General Electric is committing “accounting fraud.”

The Rebuttal

For its part, General Electric rejects the claim of Markopolos and says:

“The claims made by Mr. Markopolos are meritless. The Company has never met, spoken to or had contact with Mr. Markopolos, and we are extremely disappointed that an individual with no direct knowledge of GE would choose to make such serious and unsubstantiated claims.  GE operates at the highest level of integrity and stands behind its financial reporting. We remain focused on running our businesses every day, following the strategic path we have laid out.”

In Defense of General Electric

On August 16, 2019, in defense of GE, according to Andrew Left of Citron Research:

“Aggressive accounting and fraud are two different animals.  The SEC has allowed aggressive accounting for years, which has helped fuel a growing economy.  If GE was committing fraud then it has been a grand scale conspiracy by thousands of accountants, auditors, and division CFOs who have all secretly collaborated over the past 20 years.”

Aggressive Accounting is Fraud

On August 4, 2009, the Securities and Exchange Commission (SEC) announced that it had reached a $50 million fraud settlement with General Electric.  In the published press release, it was said that:

“‘GE bent the accounting rules beyond the breaking point,’ said Robert Khuzami, Director of the SEC's Division of Enforcement. ‘Overly aggressive accounting can distort a company's true financial condition and mislead investors.’”

Conclusions

• The decline of GE was more than 20 years in the making.
• “Aggressive accounting” by GE stretches back to the 1980’s later leading to numerous settlements with government agencies.
• “Aggressive accounting” beget more aggressive tactics.
• Andrew Left has built his reputation on identify companies to short citing “aggressive accounting” as a part of his strategy.
• Andrew Left is wrong that “aggressive accounting and fraud are two different animals.  The SEC has allowed aggressive accounting for years, which has helped fuel a growing economy...” therefore, in this instance, it isn’t fraud.
• The 2009 settlement by the SEC with GE for using “aggressive accounting” tactics is clearly defined as fraud.

See Also:

• James Grant was Right About GE
• Moody’s Investor Service: Cr*me Pays
• SEC Rewards GE Accounting Fraud
• Crime and Punishment
• Fannie Mae and Freddie Mac Fraud