A GE worker is suing her company and former CEO Jeffrey Immelt over the declining value of General Electric stock held in the GE Retirement Savings Plan, a company 401(k) plan.
The plaintiff, Adele Varga, alleges GE improperly “manipulated its earnings and inflated its stock price by improperly under-reserving for the insurance liabilities of its wholly-owned insurance subsidiaries.”
The case was filed Friday in federal court in the Northern District of New York, a region that includes GE Power’s Schenectady plant. On LinkedIn, an Adele Varga identifies herself as an engineer who has worked for GE Healthcare in the Milwaukee area for the last 17.5 years.
The lawsuit alleges that:
- The retirement plan’s fiduciaries knew or should have known the stock’s value was being artificially inflated.
- Other plan participants brought a class-action lawsuit over a similar issue under the federal Employment Retirement Income Security Act in 2006; GE settled that case in 2009 and denied wrongdoing, leading participants to believe the stock was accurately valued and a good retirement investment option. In 2016, Varga moved some of her investments into the plan’s GE Stock Fund.
- In early 2018, GE announced it had under-reserved the liabilities of two insurance subsidiaries by about $15 billion and was now the subject of a federal investigation because of that.
- The defendants had been aware of these problems, did nothing to correct earlier misleading statements, and took no action to protect participants in the retirement plan.
- Immelt retired in 2017 and was replaced by John Flannery, who began “hinting at a history of questionable bookkeeping under defendant Immelt’s tenure.”
- The defendants could have disclosed as early as 2009 the problem of under-reserved insurance liabilities. They had a fiduciary responsibility to investors to investigate whether the GE Stock Fund remained a prudent investment but instead made false or misleading statements.
- Studies show the stock market price drop is less severe for firms that self-disclose problems and more severe for companies that prolong a financial scandal.
- Had the defendants made public disclosure by the close of 2009, artificial inflation of GE stock price could have been avoided and investors in the GE Stock Fund would have suffered less harm or no harm. “Instead, defendants made the problem worse.”
- The defendants were financially conflicted — disclosing bad news risked financial pain for them though it might benefit Plan participants; on the flip side, keeping GE common stock artificially inflated benefited the defendants.
- No one benefited more than Immelt, whose compensation was affected by performance of company stock. In his last nine years, he drew $198.1 million in total compensation.
The lawsuit notes that the GE Retirement Savings Plan had more than 223,000 participants at the end of 2017 and one of its investment options is the General Electric Common Stock Fund, which is 98 percent invested in GE stock.
The value of GE stock declined from $32.93 per share in July 2016 to $6.70 on Dec. 12, 2018, though it has since rebounded more than 14 percent, closing at $7.66 on Wednesday.
The lawsuit seeks class-action status for investors in the GE Retirement Savings Plan who were affected in the same way as Varga was; a jury trial resulting in an order for the defendants to make good to the plan all the losses resulting from their fiduciary breach; and an award of actual damages in the amount of any losses the plan suffered, to be allocated to participants in proportion to their accounts’ losses.
General Electric said Wednesday via email: "We have no comment on this ongoing litigation but we intend to fully defend the case.”
An attorney for Varga did not return a request for comment for this story.