General Electric has fired back at Harry Markopolos’s claims that the company is involved in a fraud “bigger than Enron”.
On Monday, GE head of investor relations Steve Winoker sent a detailed letter to investors explaining the company’s accounting practices, particularly around its long-term care and oilfield services businesses.
“Some of the questions I’ve been receiving go straight to the heart of GE’s culture, so let me be clear: we operate with absolute integrity and stand behind our financial reporting,” Winoker wrote in his message.
Markopolos, who previously blew the whistle on Bernie Madoff, released a 175-page report Thursday claiming that GE hid $29 billion in long-term care insurance losses and $9.1 billion in losses from its 2017 investment in Baker Hughes, the oilfield services company.
According to GE, here’s what Markopolos got wrong in his report.
Winoker said that GE is in the process of adopting a new accounting standard, which has been set forth by the National Association of Insurance Commissioners, for its long-term care insurance business. According to GE, that will allow the firm to eliminate certain balance sheet losses.
GE’s reinsurer status, as well as the fact that its insurance policies do not offer cash reserves, mean that the company’s assumed risk is less than what Markopolos laid out in his report, according to Winoker.
“We believe that our current reserves are well-supported for our portfolio characteristics, and we undertake rigorous reserve adequacy testing every year,” Winoker wrote.
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Meanwhile, the company explained that it has not yet written down its losses from the Baker Hughes investment because it is required to consolidate the company due to GE retaining majority voting rights over Baker Hughes. According to Winoker, the loss, which Markopolos said was worth $9.1 billion, amounted to roughly $7.4 billion as of July 26.
“This will not impact GE’s cash needs and liquidity, and the sale of our remaining stake will also generate additional cash that can be used for deleveraging,” Winoker wrote.
Following the publication – and subsequent media frenzy – of Markopolos’s report, several major investors came out in support of GE, including Stan Druckenmiller, who on Thursday told CNBC that he bought shares of the company. Andrew Left’s Citron Research published a scathing report panning Markopolos on Friday, sharing that the firm also bought GE shares.
GE itself also responded, with its chief executive officer H. Lawrence Culp calling the report “market manipulation” following its publication. Culp purchased an additional $2 million worth of shares Thursday, more than 252,000 shares, following a separate purchase of nearly 332,000 shares earlier that week, GE shared at the time.
