GE settles fraud suit for $50 million
General Electric is paying the SEC $50 million to settle a fraud suit alleging that GE reported false accounting numbers seven years ago. Amy Scott reports on why the investigation took so long.
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Kai Ryssdal: It's been a while since a good old-fashioned accounting scandal has made it to the top of this broadcast. Back since Enron, probably. And in fact the one we've got for you today dates back about that far. General Electric has agreed to pay $50 million to settle fraud charges filed by the Securities and Exchange Commission, charges that include, and this is my favorite part: aggressive accounting. The SEC says the manufacturing conglomerate manipulated earnings back in the early years of this decade, to make itself look good. From New York, Marketplace's Amy Scott reports.
AMY SCOTT: For years it seemed like GE couldn't miss. Quarter after quarter, the company's earnings managed to meet or beat analysts' expectations.
HOWARD SCHILIT: Not only is that unusual, but it is impossible.
Howard Schilit wrote the book "Financial Shenanigans" about accounting trickery. It now appears some shenanigans were going on at GE.
The SEC says in 2002 and 2003, GE bent accounting rules to cast its financial results in a better light. Schilit says even the best-run company is bound to hit some speed bumps.
SCHILIT: So there was for many years suspicion that those numbers were based in part on financial engineering.
So why did it take the SEC so long to uncover the abuses? I put that question to David Bergers. He's regional director of the SEC's Boston office. He says today's announcement is the result of four separate investigations.
DAVID BERGERS: One violation was uncovered. The staff kept working, kept digging, uncovered yet another violation. And it essentially flowed from that.
GE agreed to pay the $50 million without admitting any wrongdoing. The company's winning streak came to an end last spring, when it reported an unexpected drop in earnings. Since then GE has stopped giving specific earnings forecasts.
In New York, I'm Amy Scott for Marketplace.
Comments
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From Manassas, VA, 08/04/2009
Why isn't that $50 million going back to us stockholders. Of course it would only be pennies but many of us are holding shares worth $13 each that we bought at $30. I kept asking myself "How could a company like GE take such a drop in share price?" The smart money must have bailed en mass and drove the price down.
From Troy, MI, 08/04/2009
Ok, so where does the $50 million go? I invested in GE and am down 70%. SOL?
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