GE plunges most in 11 Years as Madoff accuser slams accounting

Harry Markopolos

Shares of General Electric, a multinational conglomerate based in Boston in the United States, fell as much as 15 percent on Thursday after fraud investigator Harry Markopolos, who blew the whistle on financier Bernard Madoff's Ponzi scheme, said the company was concealing deep financial problems.

"My team has spent the past 7 months analyzing GE's accounting and we believe the $38 Billion in fraud we've come across is merely the tip of the iceberg", Markopolos wrote in a 175-page report detailing his findings.

"In fact, GE's $38 billion in accounting fraud amounts to over 40% of GE's market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds", Markopolos wrote in the report, referring to the scandals that eventually helped bankrupt energy giant Enron in 2001 and long-distance telco WorldCom in 2002.

The company said it "stands behind its financials" and operates to the "highest-level of integrity" in its financial reporting.

GE also claims that Markopolos has ties to hedge funds that would benefit from a decline in the company's stock.

Earlier, GE issued a robust response to Mr Markopolos: "We remain focused on running our business every day and. will not be distracted by this type of meritless, misguided and self-serving speculation".

Markopolos disclosed that an unnamed hedge fund paid him for access to his GE report before it was released, revealing that he will be paid through a percentage of the trading profits.

Shares rose as much as 8.2% in NY, following Thursday's 11% decline, which marked the steepest drop since 2008. GE does not have "adequate reserves" to cover the liabilities on its long-term care business, even though it boosted those reserves by $15 billion previous year, according to the research.

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The company has 10 "buy" ratings, 10 "hold" ratings, and four "sell" ratings from analysts, with a consensus price target of $11.22, according to Bloomberg data.

In the past two years, GE has announced more than $40bn in asset write-downs and accounting charges.

Shonda Rhimes appears to have directed yesterday's biz news, because a bombshell whistleblower report targeted GE's (-11.30%) accounting practices. The company also has said its accounting is being investigated by the U.S. Securities and Exchange Commission and the Department of Justice. "But this is market manipulation - pure and simple", GE CEO Lawrence Culp said in statement. Madoff was jailed for 150 years in 2009 after pleading guilty to swindling investors out of $65bn in savings. "The market should ignore it".

Markopolos told The Wall Street Journal that GE will need to bolster its insurance reserves by $US18.5 billion ($A27 billion) in cash and should have booked billions in losses in its oil and gas division.

And one of GE's independent directors also pushed back against Markopolos' allegations. He also claimed that GE was hiding a loss of more than $9 billion on its holdings in Baker Hughes.

Heymann believes that the worst has passed, and GE's financial health is "gradually beginning to improve".

A bad month got worse for General Electric (GE) yesterday when a whistleblower report was released by a forensic accountant alleging that accounting fraud will cause GE to go bankrupt.

"I think that the basis on which the report was developed is questionable at best", Seidman said.

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