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.
Find a Qualified Financial Advisor (Sponsor)
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
