GE Shares Tumble After Madoff Whistleblower Publishes Fraud Report

General Electric
A traffic light is seen in front of a logo of General Electric at the company's plant in Birr (Photo: Reuters / Arnd Wiegmann)

The man that publicly uncovered the infamous Madoff Ponzi scheme is now targeting General Electric (GE) in his latest investigation. Harry Markopolos released a report on Thursday, which contained the findings of his team's investigation into GE's accounting practices.

The 175-page report alleged that GE has been involved in a $38 billion fraud scheme that was "bigger than Enron and WorldCom combined." Markopolos claimed that the company has been actively hiding its financial issues from the public for years and has been engaging in fraudulent activities for a much longer time.

Following the release of the report, GE's share priced tumbled by as much as 14 percent. The company's stock prices opened at $8.71 per share on Thursday, which was still up by 15 percent since the start of the year.

The report claimed that GE had knowingly edited its financial statement to hide costs and expenses. The activities apparently hid the fact that the company was already on the verge of insolvency. Markopolos stated that the investigation his team had launched against GE was the biggest they have encountered over the past nine years.

The investigation team, which is comprised mainly of accountants, reportedly found at least $38 billion worth of fraudulent transactions. Despite the large amount, the team claims that this may just be the "tip of the iceberg" as there may be more to uncover.

The team has allegedly found fraudulent activities that had spanned decades, where the company knowingly reported only top-line revenues and bottom line profits. GE apparently left out some very important details in its reports, including the cost of goods, administrative expenses, corporate overhead allocations, and research and development expenses.

One of the focuses of the investigation was GE's long-term care insurance unit, which was found to have thousands of false regulatory reports that hid losses from investors. The unethical accounting practices also reached the company's other businesses, including its oil and gas unit Baker Hughes.

GE responded to the accusations this week and mentioned that Markopolos' claims were "meritless." The company further stated that it operates at the highest level of integrity and standards, which includes its financial reporting. The firm's CEO Lawrence Culp, publicly condemned Markopolos' report, calling it nothing more than "marketing manipulation" aimed at profiting from the drop in the company's stock prices.

Markopolos first made headlines back in 1999 when he revealed irregularities in Bernie Madoff's investment strategy business. The accounting expert informed the Securities and Exchange Commission (SEC) of his findings, which eventually led to the discovery of Madoff's business as being nothing more than a complicated Ponzi scheme. 

© 2019 Business Times All rights reserved. Do not reproduce without permission.
Sign Up for Newsletters and Alerts