GE to Pay $50 Million to Settle SEC Fraud Charges
GE allegedly used improper accounting methods to boost reported earnings and avoid disclosing negative results.
(By Richard Drew -- Associated Press)
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Wednesday, August 5, 2009
General Electric, a giant conglomerate that owns manufacturing, media and financial companies, agreed Tuesday to pay $50 million to settle federal charges that it committed accounting fraud over a two-year period.
GE settled civil fraud charges brought by the Securities and Exchange Commission, which alleged that the company used improper accounting methods that allowed it to boost its reported earnings and avoid disclosing negative results.
The alleged violations included the company's accounting for certain loans and sales of trains and aircraft parts, the SEC said, and enabled GE to boost earnings by hundreds of millions of dollars.
"GE bent the accounting rules beyond the breaking point," Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement. "Overly aggressive accounting can distort a company's true financial condition and mislead investors."
As is customary with civil settlements, GE did not admit or deny the allegations. "We have concluded that it is in the best interests of GE and its shareholders to resolve this matter and put it behind us on the basis announced today," the company said in a statement.
The SEC complaint, filed in federal court in Connecticut, alleged that GE met or surpassed analysts' earnings estimates every quarter from 1995 through 2004. A company's shares will often fall if it misses these estimates.
Four separate times in 2002 and 2003, GE executives signed off on accounting decisions that were not in compliance with the rules for how public companies must report their finances, the SEC said. Two times, the executives were committing outright fraud, and on the other two they were negligent, the agency claimed.
In one instance, the accounting changes allowed GE to avoid falling short of analysts' expectations, the agency said.
The SEC did not name the executives involved.
The alleged accounting violations ranged widely.
One involved an inappropriate application of accounting rules to certain short-term loans the company received, allowing it to book $200 million in additional profits.
Another involved improper accounting for sales of commercial aircraft engine spare parts, boosting earnings by $585 million.
A third involved reporting sales of trains that hadn't yet occurred, accelerating $370 million in revenue.
And the fourth concerned accounting for financial instruments the company invested in. The SEC did not specify a price tag associated with this violation.
The SEC said GE has taken action to address its concerns. GE said it corrected its financial statements and spent $200 million in legal and accounting expenses to fix the problems raised by the SEC.
