It’s pretty hard to deny that General Electric Co. (NYSE: GE) stockholders suffered a bloodbath on Thursday. The company’s shares had dropped 11% by the closing bell, following a scathing report on the company by whistleblower Harry Markopoulos, whose prior claims to fame include toppling Bernie Madoff, Enron and WorldCom.
GE CEO Larry Culp not only fired back with a charge of “market manipulation,” but he also spent nearly $2 million of his own money to buy more than 250,000 additional shares of GE stock at $7.93 a share. At an opening price early Friday of $8.54, Culp already has gained nearly $150,000 on his investment.
In a report posted online Thursday, Markopoulos charged GE with $38 billion in accounting fraud related to its reinsurance business for long-term care (LTC) policies issued by other insurers.
In a statement, Culp said:
GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple. Mr. Markopolos’s report contains false statements of fact and these claims could have been corrected if he had checked them with GE before publishing the report.
In a statement issued Thursday, the company disputed Markopoulos’s allegations regarding its reserves requirement, its accounting for its majority stake in Baker Hughes, a GE Company (NYSE: BHGE) and its liquidity.
As Barron’s pointed out Friday morning, the cash drain Markopoulos alleges is coming is an investor’s biggest worry. Markopoulos claims “86% of GE’s LTC claims are ahead of them and the accompanying losses are growing at an exponential and unsurvivable rate.”
According to Markopoulos, GE needs $18.5 billion in cash essentially immediately to cover its reserve requirements, in addition to the $15 billion it already began contributing late last year. That’s the tricky bit, RBC analyst Mark Dwelle told Barron’s. Without detailed knowledge of GE’s reinsurance agreements — all of which are slightly different and remain undisclosed in full — comparing GE’s state-level filings to the filings of other insurers is like comparing a nectarine to a peach, they are close, “but they are not the same.”
In the late morning Friday, GE shares traded up about 6.3%, at $8.51 in a 52-week range of $6.40 to $13.25, and the 12-month consensus price target on the stock is $10.89.
24/7 Wall St.Want to Retire Early? Start Here (Sponsor)
Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?
Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.
Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.
Have questions about retirement or personal finance? Email us at [email protected]!
By emailing your questions to 24/7 Wall St., you agree to have them published anonymously on a673b.bigscoots-temp.com.
By submitting your story, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
