GE to pay $200M to settle SEC allegation of misleading investors

GAZETTE PHOTOGeneral Electric Building 37 at its Schenectady campus is pictured.

General Electric Building 37 at its Schenectady campus is pictured.

WASHINGTON — General Electric has agreed to pay a $200 million penalty to resolve a federal investigation of whether it misled investors about the performance of GE Power, then headquartered in Schenectady, and about liabilities in its insurance portfolio.

The Securities and Exchange Commission announced the agreement Wednesday.

GE in a prepared statement said it neither admits nor denies the allegations but has concluded the settlement was in the best interest of the company and its shareholders.

The investigation dates to a very grim time for owners of General Electric stock: 2017-2018 when the value of a share plunged amid gradual disclosure of the negative impact from numerous strategic and accounting decisions.

Per-share price closed at $31.69 on the first day of trading in 2017 and $7.57 on the last day of trading in 2018, a 76 percent drop.

In its order, the SEC finds that:

  • GE violated the antifraud, reporting, disclosure controls and accounting controls provisions of federal securities laws.
  • GE misled investors by reporting GE Power profits without disclosing that about 25 percent of the 2016 profits and about 50 percent of the profits in the first three quarters of 2017 were created on paper by reducing prior cost estimates.
  • GE failed to tell investors that the reported increase in current industrial cash collections was coming at the cost of cash in future years, and came primarily from internal receivable sales between GE Power and GE Capital.
  • GE lowered projected costs for claims against its long-term care insurance portfolio from 2015 to 2017 and failed to inform investors of resulting uncertainties at a time of rising costs from long-term health insurance claims.

“Investors are entitled to an accurate picture of a company’s material operating results,” Stephanie Avakian, director of SEC’s Division of Enforcement, said in an SEC news release. “GE’s repeated disclosure failures across multiple businesses materially misled investors about how it was generating reported earnings and cash growth as well as latent risks in its insurance business.”

In the same release, John T. Dugan, associate director of enforcement in the SEC’s Boston Regional Office, noted what GE itself has acknowledged in recent years and vowed to improve — the complexity of its financials.

The agreement calls for GE to cease and desist from future violations, pay the $200 million, and report certain accounting and disclosure controls in its Power and insurance businesses to the SEC for a one-year period.

In a federal regulatory filing Wednesday, GE noted the settlement does not require corrections or restatements of previous financial statements, and said it stands behind its financial reporting. It also said it cooperated with the SEC investigation and has taken steps to enhance investor disclosures since the period highlighted in the probe.

In a prepared public statement Wednesday, GE said:

“This announcement brings the entire scope of the SEC investigation of GE to a close, and no corrections or revisions to our financial statements are required. We have concluded that it is in the best interests of GE and its shareholders to settle this matter on the basis announced today in which, consistent with common SEC practice, we neither admit nor deny the SEC’s allegations. We are pleased to have reached an agreement that puts the matter behind us. Under the current leadership team, we have significantly enhanced our disclosures and internal controls and are a stronger company today.”

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