The company has been accused of disclosure failures
December 10, 2020
The Securities and Exchange Commission (SEC) has charged General Electric (GE) with misleading stockholders about the financial problems in its insurance and power businesses prior to the tumbling of its stock.
The SEC said Wednesday that GE didnt adequately explain to stockholders that its insurance and power businesses had been deteriorating, or about how cash flowed between its industrial and financial businesses.
In its order, the SEC further accused GE of misleading investors in 2016 and 2017 about the source of profitability in its power unit. The agency also said GE didnt do a good enough job of explaining to investors the risks related to its portfolio of long-term health insurance liabilities between 2015 and 2017.
Disclosure failures
The companys stock plunged nearly 76 percent from the beginning of 2016 through the end of 2018. The SEC opened an investigation into the companys accounting practices in 2017 after it recorded an accounting charge of $6.2 billion.
GE has agreed to pay $200 million to settle the three-year investigation.
Investors are entitled to an accurate picture of a companys material operating results, said Stephanie Avakian, Director of the Division of Enforcement in a statement. GEs repeated disclosure failures across multiple businesses materially misled investors about how it was generating reported earnings and cash growth as well as latent risks in its insurance business.
GE told Reuters that its never a proud moment for a company to have to settle an SEC accounting investigation and pay a civil fine. However, officials said the company considers the settlement reached Wednesday to be a favorable outcome for GE.
Under the settlement, the company does not have to admit wrongdoing or make any further corrections or revisions to financial statements. GE will be required to report to the SEC on its accounting and disclosure controls for one year.
"We are pleased to have reached an agreement that puts the matter behind us," GE said in a statement. "Under the current leadership team, we have significantly enhanced our disclosures and internal controls and are a stronger company today."