Markopolos said in a report released Thursday that GE hid nearly $ 40 billion in insurance business losses. He said this is the biggest case of accounting fraud he and his team have investigated.
"In fact, GE's $ 38 billion in accounting fraud amounts to over 40% of GE's market value, making it far more serious than either Enron or WorldCom accounting fraud," Markopolos wrote in the report, citing scandals that ultimately helped the bankrupt energy giant Enron in 2001 and long-distance telco WorldCom in 2002.
GE strongly denied Markopolo's claims.
"The allegations made by Mr. Markopolos are worthless," GE said in a statement, adding that "they have never met, spoken to or contacted Mr. Markopolos, and we are extremely disappointed that a person without direct knowledge of GE would have chosen to make such serious and unsubstantiated claims. "
Markopolos made several comparisons with Enron in his report and also on a new website with the URL www.gefraud.com. He accused GE of using what he called the "GEnron" game book. "
" GE has run a decade-long accounting fraud by providing only top line revenue and profits for business units and avoiding leaving Cost of Goods Sold "in addition to various other expenses," claims Markopolos.
He also addressed the issue of how GE stands for the majority of oil service company Baker Hughes and accused the company of hiding more than $ 9 billion in losses in its separately traded BHGE ( BHGE ) unit.
Shares of GE ( GE )
3% on the news. The stock is still up 7.5% this year, as new CEO Larry Culp has been busy selling non-core assets to raise cash.
These sales can also help turn GE by making the notoriously complex company leaner and more focused on power and renewable energy, aviation and health care continues to have solid growth prospects.
GE was not immediately available for further comment on the Markopolos- claims. But in the statement, the company questioned Markopolo's accusations of accounting in the insurance unit, saying that "current reserves are well supported for our portfolio characteristics."
GE also defended how it stands for its BHGE stake, adding that it has "a strong liquidity position" – with plenty of cash and access to credit lines.
The company noted that "Mr. Markopolos openly acknowledges that he is being compensated by named hedge funds" and added that these funds are "financially motivated" to profit from selling the stock, a move that could push the shares lower and "create unnecessary volatility. "
Markopolos still states in his report that he does not make any investment recommendations, adding that" GE's current and former employees are the victims here, and GE's lenders, suppliers and customers all have to cope in the wake of an accounting fraud. "
Markopolos is far from the only critical to GE's accounts.
Activist shareholder company CtW said in an April letter to GE's leading independent board member Thomas Horton that "erroneous capital allocation strategies and several shareholder derivative lawsuits … cast doubt on the company's financial health."
CtW also questioned GE's continuing relationship with the audit firm KPMG, which has been reviewing GE's books for more than a century. Several other shareholder shareholders also urged GE to dump KPMG, and GE said in December that the Audit Committee would consider making a change – but only until 2020.
KPMG declined to comment on its business relationship with GE. "client confidentiality requirements."