Whistleblower Harry Markopolos, who famously figured out that Bernie Madoff was a fraud (the SEC
infamously ignored him), is out with a 175-page report on General Electric (GE), alleging that the
company is "a bigger fraud than Enron." GE is down about 10% today. Excerpt:
The Fraud
Investigators have been researching General Electric's financials and accounting practices for more than
one year. The result is the discovery of an Enronesque business approach that has left GE on the verge of
insolvency. GE has been running a decades long accounting fraud by only providing top line revenue
and bottom line profits for its business units and getting away with leaving out cost of goods sold,
SG&A, R&D and corporate overhead allocations. My team has spent the past seven months analyzing GE's
accounting and we believe the $38 billion in fraud we've come across is merely the tip of the iceberg.
Danke, alles sehr interessant. Bin gespannt wie das ausgeht. Bin jedenfalls
froh meinen Trade mit der GE-Hybridanleihe schon gut abgeschlossen zu haben.
We have made our first trip through the 175 page Markopolos report.
Our initial takeaways:
1) throwing everything against the wall with hyperbole with the most troubling aspects around
the LTC book. - we agree that the LTC book is under-reserved particularly with recent rate backdrop but
do not see anything close to $18B of cash is needed TODAY.
2) The non-cash charges around
Baker Hughes are very well known and again will be NON-CASH. Real cash proceeds are being raised and will
likely be used for a debt tender later this year.
3) This slide-deck is very reminiscent of
the giant report on BAC back in 2010/2011 which forecast a black-hole/insolvency from MBS putbacks. If
everything was due today it is in fact a big problem but the analysis misses the power of TIME and that
all future potential liabilities are not due today.
4) GE has been crawling with accountants,
regulators, consultants for several years now. Tough to believe this is actually a "fraud" compared to
the likes of ENRON etc which the report really likes to highlight with hyperbole.
5) Still
expect a large GE debt tender by the end of year after the execution of the BioPharma/Danaher deal (4Q
close ~ $20B). “
GE CEO Larry Culp on Thursday bought 252,200 shares at $7.93 per share, a purchase worth almost $2
million, according to an SEC filing. The buy helped bump GE's share price around 2% in after-hours
trading. Culp's ownership of GE stock nearly doubled this week after an earlier purchase Tuesday — he now
owns more than 1% of the company's outstanding shares.
Warren Buffett(3290)
General Electric Fraud?!? 
