U.S. SEC Fines General Electric for Misleading Investors

Financial authorities in the United States have slapped one of the world’s largest energy suppliers with a US$200 million penalty to settle charges over public-disclosure failures.

It is not the first time General Electric has fallen foul of authorities for its business practices (Credit: Narjesm, CC BY-SA 4.0)It is not the first time General Electric has fallen foul of authorities for its business practices (Credit: Narjesm, CC BY-SA 4.0)The U.S. Securities and Exchange Commission (SEC) announced on Wednesday it had fined General Electric for misleading investors as to the profitability of its power and insurance subsidiaries between 2015 and 2017.

Investigators had found that the company violated anti-fraud, reporting and disclosure controls, as well as accounting provisions, outlined in various U.S. securities laws.

Specifically, General Electric failed to qualify GE Power’s profit margins in 2016 and 2017 by explaining that these had stemmed from reductions to prior cost estimates and internal sales to its financial services subsidiary, GE Capital.

Additionally, the group did not disclose to investors it had lowered projected costs for claims against its insurance portfolio, despite having done this at a time during which long-term health insurance claims were in fact steadily rising.

While the order did not require General Electric to admit or deny the SEC’s findings, the group agreed to cease and desist from future violations of this kind, in addition to paying the $200 million penalty and reporting to the authority for a 12 month period regarding accounting and disclosure controls at its insurance and power businesses.

“Investors are entitled to an accurate picture of a company’s material opening results,” director of the SEC’s enforcement division, Stephanie Avakian, said in a statement.

“GE’s repeated disclosure failures across multiple businesses materially misled investors about how it was generating reporting earnings and cash growth, as well as latent risks in its insurance business,” she added.

The agency further noted that its investigation into the company is still ongoing.

It is not the first time the SEC has sought action against General Electric for its business practices. In July 2010, the agency brought a civil case against the company for violation of the US Foreign and Corrupt Practices act in connection with bribes paid to former Iraqi government officials under a United Nations aid program.

Nor are these the only instances in which GE has been implicated in allegations of corporate wrongdoing. Earlier in September 2020, OCCRP reported that General Electric had built business ties with the Kaloti gold refinery in Dubai, a conglomerate believed to be “a key cog in the dirty gold trade.”

Those revelations followed just three months after U.K. tax authorities accused the company of making fraudulent claims for tax relief, according to the Financial Times.

The previous September, Reuters reported that prosecutors in Paris had confirmed they were investigating the general manager of the company’s French division for “improper acquisition of interests.”

In April of that year, the U.S. Justice Department announced that General Electric would pay a $1.5 billion fine to settle allegations that one of its subsidiaries, with full knowledge of group personnel, had mis-sold subprime residential mortgage-backed securities, one of a number of fraudulent practices widely credited with causing the 2008 global financial crash.

Those reports followed after a July 2018 indictment filed in Brazil against the CEO of one the group’s Latin American holdings indicated that the company had allegedly been involved in a bribery scheme designed to artificially increase and then cash in on inflated prices for medical equipment.

The allegations heaped further scandal on the company’s operations in the country after claims by one of the highest ranking former executives at state-owned oil conglomerate Petrobras, reported by Bloomberg, that GE had made illicit payments to public officials as part of a vast bribery scandal, uncovered by investigators in the course of the now-famous Operation Car Wash probe.