General Electric shares declined by almost 5% in pre-market trade to $8.61, after the release of a report by Harry Markopolos, alleging the company is masking financial troubles.
According to Markopolo’s whistle blowing report, GE’s alleged $38 billion in accounting fraud amounts to over 40% of GE’s market capitalisation, making it far more serious than either the Enron or WorldCom accounting frauds”.
He accused GE of understating its insurance business liabilities, misleading investors with inaccurate financial statements and being short on cash.
Markopolos further stated that “GE’s true debt to equity ratio is 17:1, not 3:1, which will undermine its credit status”.
“While we can’t comment on the detailed content of a report that we haven’t seen, the allegations we have heard are entirely false and misleading,” GE said in a statement to FT.
“GE stands behind its financials. We operate to the highest level of integrity in our financial reporting and we have clearly laid out our financial obligations in great detail.”
GE added: “It’s widely known and the Wall Street Journal has previously reported that he works for and is compensated by unnamed hedge funds. Such funds are usually financially motivated to try to generate short selling in a company’s stock to create unnecessary volatility.” The allegations were first reported by the Wall Street Journal.
GE shares were up 24% year-to-date as of 14 August’s close.