The whistleblower who called out Bernard Madoff’s Ponzi scheme has accused General Electric of wide-scale fraud in a move that has sent the conglomerate’s share price into a tailspin.
In a report titled General Electric, a Bigger Fraud Than Enron, investigator Harry Markopolos claims GE is engaging in accounting fraud worth $38bn. He said GE is heading for bankruptcy and is hiding $29bn in long-term care losses.
“GE’s $38bn 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,” he writes, referencing two of the largest corporate accounting scandals in history.
After a year long investigation for an unidentified hedge fund, Markopolos writes he has discovered “an Enronesque business approach that has left GE on the verge of insolvency”. Enron, a Texas-based energy group, filed for bankruptcy in 2001, brought down by a massive accountancy scandal.
This report is “going to make this company probably file for bankruptcy”, Markopolos told CNBC’s Squawk on the Street. “WorldCom and Enron lasted about four months … We’ll see how GE does.”
In a statement GE said it “stands behind its financials” and operates to the “highest level of integrity” in its financial reporting. “We remain focused on running our business every day and … will not be distracted by this type of meritless, misguided and self-serving speculation.”
GE’s share price sank close to 15% after the report was released.
General Electric is already under investigation by the Securities and Exchange Commission (SEC), the US’s top financial watchdog, and the justice department over accounting irregularities related to its insurance and power divisions.
Once the world’s most valuable company, GE has struggled in recent years. Former CEO and chairman John Flannery was abruptly removed last year after only a year on the job and replaced by former Lawrence Culp, former CEO of the Danaher conglomerate.
Markopolos is best known for his role as the whistleblower who warned the SEC about Madoff’s Ponzi scheme. Madoff was jailed for 150-years in 2009 after pleading guilty to swindling investors out of $65bn in savings.