GE stock drops as whistleblower levels accounting accusations

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By Tony Robinson on 8/15/2019

NEW YORK (Bloomberg) – General Electric Co. fell in early trading after a whistle-blower accused the company of masking financial problems.

Harry Markopolos, who had raised concerns over investment manager Bernie Madoff before his Ponzi scheme was exposed, said GE has understated liabilities in its insurance unit and hasn’t properly accounted for its investment in Baker Hughes.

The shares dropped 5.9% to $8.50 before the start of regular trading Thursday in New York after Markopolos’s allegations were detailed by the Wall Street Journal. GE had climbed 24% this year, following a 57% plunge in 2018.

Markopolos said GE’s insurance unit will need to increase its reserves by $18.5 billion, according to the Journal article. He also alleged that GE isn’t properly accounting for its interest in Baker Hughes, an oil-and-gas servises company.

Markopolos is working with a hedge fund he didn’t identify and stands to benefit from bets that GE’s stock will decline, the Journal reported. Markopolos and his colleagues also hope to collect a whistle-blower reward by reporting their findings to regulators, according to the article.

“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,” a GE spokeswoman said in an email to the Journal before the report was published. “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.”