Shares of General Electric (NYSE: GE) on Thursday suffered their biggest intra-day loss in recent times and closed the session down more than 10%. The mass selloff, which followed revelations by forensic accountant Harry Markopolos that GE engaged in accounting fraud, came at a time when the engineering juggernaut is struggling with multiple challenges.
In its response to Markopolos’ claims – that the financial manipulation is bigger than “Enron and WorldCom combined” –the company in a statement said the allegations are “meritless”. Questioning the accuser’s intentions, the company said he is being compensated by hedge funds with vested interests.
Soon after the clarification, the stock switched to recovery mode, trading sharply higher during Friday’s early session. A big boost came after chief executive officer Larry Culp purchased shares worth $2 million.
Markopolos, known for his sensational investigations and exposures in the financial market, also offered to substantiate his claims with sufficient evidence. In an interview, the whistleblower reportedly claimed to be in possession of crucial information against GE, which he wanted to withhold due to technical reasons. Unfazed by the charges, meanwhile, the GE management asserted it would “stand behind its financial reporting.”
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The company dismissed the allegations saying GE executives never contacted or interacted with Markopolos, who has little knowledge about the company’s functioning. The investigator in his detailed report went to the extent of saying that the only option left for GE is to file for bankruptcy.
The once-thriving conglomerate sees no merit in the charges due to Markopolos’ links with hedge funds, which according to the company often trigger short-selling in its stock for undue monetary gains. GE is already facing a detailed regulatory investigation into its financial reporting. Markopolos is credited for exposing major financial frauds, including the Ponzi scheme involving Bernie Madoff.
One thing is certain – the latest developments do not bode well for the crisis-stricken Wall Street giant which is currently engaged in an extensive restructuring to get back on track, involving divestitures and layoffs. Last month, the company reported a loss of $61 million for the second quarter, mainly due to one-time accounting charges related to the power generation segment.
Before regaining momentum at Friday’s open, GE shares had fallen to $7.75, the lowest so far this year. They have lost 28% since last year.