GE accuses Markopolos of ginning up false claims as part of a drive to benefit short sellers, who make money when GE’s share price declines. Markopolos his research was funded by short-sellers, but he says that his research was motivated by his distaste for fraud, not the interests of his funders.
Wow. There is an awful lot packed into that paragraph.
This guy might be right. This is GE, after all, the company that used funny accounting to pay no taxes even before the recent modifications to the tax code. But it’s appalling that this guy stands to gain from shorting the stock he just torpedoed. This is literally the definition of both “conflict of interest” and “market manipulation.”
Also, as noted upthread, GE makes less and less real product all the time. Of the products it does make, many are probably now sourced from no-name suppliers in Asia. It does, however, own an insurance business that is one of the major sources of its various liabilities.
What worries me is that it’s a blue chip that is in almost every IRA and 401K and pension fund in this country. And now every few minutes some news source is publishing an article about how we should panic on account of this recession that’s about to hit any minute now. GE might survive its current debt load, but not if a recession drops its revenue through the floor.
Lots of people make one great call, then everyone follows them like a guru, and…you get this kind of thing:
Markopolos seems a bit smarter, probably less of a broken-clock phenomenon, but putting too much trust in someone because of one good call is a mistake that gets repeated ad infinitum.
do they still make these?
BWR nuclear cock and balls @ Fukushima Daiichi
I doubt they are that blatant. He probably has a contract in which he is paid the same no matter his findings. It’s just that everyone knows it is easier to get the next job if you get the result your employer wants. This makes it impossible to prove fraud.
I have a pretty strong feeling, that before this hedge fund paid this guy a pile of money, and release his report to the public, that they ran it by the lawyers first. Telling people that a company committing fraud is committing fraud, is not marked in manipulation, it’s telling other people that accompany is committing fraud.
You are in fact allowed to profit from this. The very reason why we have stocks to begin with, is in fact to uncover fraud like this. The whole point of having a market, is that an incentivizes people to go out in learn and discover if companies are profitable and honest. If you discover that a company is lying, and if they are not as healthy as they appear to the rest of the market, then you are in fact allowed to use your special knowledge to go profit from that. In doing so, you tell everyone else that that company has a problem. The information that the company in question is acting fraudulently is important information that the market needs to know, so market stops giving the money.
Finding out information about companies that other people have not got spotted yet is literally the reason why we have stock markets. If this guy spotted a fraud, and then just made a bunch of money on that, good. Corporation should be afraid of their fraud will be spotted, and people at spot it should be rewarded. GE is not a victim.
Except this is a total fabrication, a fraud intended to induce panic and create profit by fake news. Like a pump-and-dump scheme, these guys need to be prosecuted.
It’s not as if Markopolos is GE’s only critic. S&P downgraded GE’s credit to BBB+ last year. That’s one step from “junk” status. Shocking when you consider what a blue-chip GE used to be.
I’m really far outside any subject area expertise, but an awful lot of the claims in the report seem to be specific and (at least in principle) verifiable. If it’s baloney, it’s the very best baloney.
Sorry, but I will be unable to visit your website while the horrid maggot pic is front-and-center in the top slot. Lemme know when you pull it down, otherwise … See you in a week.
In recent years GE has actually been reducing the size of GE Capital and have e.g. sold off their mortage and banking divisions. GE first got into finance back in the 30s by lending money to businesses that wanted to buy GE products, and from my understanding they’ve been moving their finance focus back to that.
But five, ten years ago? Yeah, back then they were one of the biggest finance companies in the US.
GE is not a ‘blue chip’ in terms of being part of the Dow 30. However, it is one of the companies that make up the S&P 500.
I won’t comment too much on the report, other than a remark about the mashup logo that was created, making the swirly GE logo look like the lopsided Enron logo. That makes the report look quite sensationalistic, and the image is on near every page.
But as a kid that grew up with GE (my dad worked there for decades, retired with the gold watch and everything), it’s been sad to watch this stalwart institution on its long, downward death slide. My take (FWIW) is that the company started to get too much into the financials, hiring too many too-smart MBAs, and losing their focus, slowly, too slow for people to actually notice. But the market sure has noticed over the past years. Is it too late to save? It just might be too late, I’m afraid, especially now that they are well along selling their assets (plastics to the Saudis?).
My mom still has a small handful of GE stock, and it’s been hard for me to tell her how it’s way, way down and will probably never recover. For her loyalty holding them all these years, she now also has a drop of WABTEC (Westinghouse Air Brakes? Really?) stock. It has a D rating, last I checked.
This whole GE thing really sucks. My dad’s spinning in his grave. Stupid managers, he’d say.
GE was the world’s biggest company in 2000. It’s quite a drop from $500 billion to $70 billion market cap in a few decades.
Enron wanted to sue their critics too, and called them the same names.
If Markapolos believes GE is going to go bankrupt, there’s little doubt he has a large short position in the stock. As long as he discloses this, there’s nothing wrong with profiting from a company’s legitimate downfall after exposing its weaknesses.
If his information is incorrect and he’s aware that it’s incorrect, that’s another matter. But calling it “Fake News” just invokes Trump and yeah…that’s not too convincing.
And when should it have been made public? Before he turned in the work to those who paid him to do it?
I had stock through the Stash app but they kept loosing stock value, I simply had to sell, everything in the charts provided only indicated it would continue to fall. If this comes to pass I suppose it was the right move 
My Mom refuses to sell the Exxon stock she inherited from my Grandfather, who started out in the oil business as a geologist riding horseback through east Texas in the 1930s. From an investment perspective, it’s not the best choice to hang onto that stock. But I teared up when I cashed in the savings bonds he gave me when I was little, so I get it.
I haven’t read his report, but on the LTC insurance reserve issue, it looks like his argument is that other insurance firms are holding much higher reserves for exposure to the same counter parties. So, he’s saying that either the other insurers are all over reserving or GE is under reserving.
The way that I’m reading his other main argument is that GE is manipulating accounting rues to avoid marking their ownership value down to market on their Baker Hughes stake. They sold down from 62.5% to 50.2% and booked a $2.2B loss on just that. But since they are still above 50% ownership (which is purposeful/ strategic), they can report the book equity that Baker Hughes shows (assets less liabilities) and avoid marking down the remaining equity stake to the true market value. i.e. the stake they just sold didn’t go for book value, so it stands to reason that the rest also isn’t worth book value.
Whatever his motivations for pointing this out, he is making points that can easily be verified or contradicted by the SEC.
So has anybody with sufficient financial and accounting knowledge been able to confirm or deny the contents of the report?.. like with the Madoff thing, Harry Markopolos has put his chips on the table, with detail, and… everyone else seems to be talking around the contents of the report, probably due to lack of expertise in the subject… can GE show that any of the info used as inputs, or the reasoning in the report, is not valid?
I think that you’re looking for more of an expert than me, but it wouldn’t take much investigation to confirm the 2nd point that I posted above. If they took a $2.2B loss on the sale of 12.5% of the stake, then they have about an $8.8B loss remaining on the other 50% that they haven’t sold or marked to market.
As a slight counterpoint, maybe the 12.5% sale went at a bit of a discount because it was a minority position. But still, it seems obvious that there are embedded losses in the remaining stake that they aren’t obligated to reveal. On this point, it isn’t necessarily fraud, but it is using specific accounting rules to avoid communicating to investors the true picture. So maybe the fair outcome is for someone to point it out to investors like he has.
Short sellers usually get a bad name, but they are the contrarians that keep things honest in many cases. If a company’s stock was undervalued and someone pointed out specific ways that its acccounting was understating its true value, few people would be screaming “market manipulation”. It’s only a bad thing if the information is purposefully untrue- pump and dump, etc.
FYI, Those are mealworms.
