Harry Markopolos, best known for being one of the first people to blow the lid off the Bernie Madoff Ponzi-scheme, published a 170-page report providing details of copious alleged accounting regularities.
Markopolos alleges that General Electric’s (GE) accounting practices flatter the company’s financial position to the tune of US$38bn, which would make GE’s alleged action “a bigger fraud than Enron” - the energy trading company that collapsed in 2001 after its apparently strong balance sheet proved to be largely a work of fiction.
“GE’s $38 billion in accounting fraud amounts to over 40 per cent of GE’s market capitalisation, making it far more serious than either the Enron or WorldCom accounting frauds. GE’s true debt to equity ratio is 17-1, not 3-1, which will undermine its credit status,” Markopolos’s report said.
Markopolos acknowledged that he and several colleagues were in league with a hedge fund aiming to profit from a fall in GE’s share price.
Markopolos not too subtle pic.twitter.com/Ool4FBBP0u— zerohedge (@zerohedge) August 15, 2019
GE’s chief executive officer, Larry Culp, said Markopolos’s action was “market manipulation; pure and simple”.
“We are extremely disappointed that an individual with no direct knowledge of GE would choose to make such serious and unsubstantiated claims,” GE said in a statement.
“GE operates at the highest level of integrity and stands behind its financial reporting. Mr Markopolos openly acknowledges that he is compensated by unnamed hedge funds. Such funds are financially motivated to attempt to generate short selling in a company’s stock to create unnecessary volatility,” it added.
GE is particularly vulnerable to claims of cooking the books, as it currently being investigated by the Securities and Exchange Commission for alleged accounting irregularities in its power and insurance businesses. The US justice department also has GE under its microscope.
For decades, the company was a byword for buttoned-up respectability and it was at one time the biggest company in the world in terms of market capitalisation. Yesterday’s fall wiped US$8.9bn from the company’s market value, which now stands at US$69.9bn.
Markopolos predicted that his report would probably make GE file for bankruptcy.
“WorldCom and Enron lasted about four months,” he told CNBC’s Squawk on the Street. “We’ll see how GE does.”