General Electric Co. (GE) has agreed to pay a $200 million penalty to settle charges for disclosure failures in its power and insurance businesses. In 2017 and 2018, GE’s stock price fell by almost 75% as challenges in its power and insurance businesses were disclosed to the public.
According to the SEC’s order, GE misled investors by describing its GE Power profits without explaining that one-quarter of profits in 2016 and nearly half in the first three quarters of 2017 stemmed from reductions in its prior cost estimates. The order also finds that GE failed to tell investors that its reported increase in current industrial cash collections was coming at the expense of cash in future years and came primarily from internal receivable sales between GE Power and GE’s financial services business, GE Capital. In addition, the order finds that from 2015 to 2017, GE lowered projected costs for claims against its long-term care insurance portfolio and failed to inform investors of the corresponding uncertainties resulting from lower estimates of future insurance liabilities at a time of rising costs from long-term health insurance claims.
“Investors are entitled to an accurate picture of a company’s material operating results,” said Stephanie Avakian, Director of the Division of Enforcement. “GE’s 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.”
“Public companies must take great care to follow disclosure laws for the benefit of their investors,” said John T. Dugan, Associate Director of Enforcement in the SEC’s Boston Regional Office. “Companies like GE, with complexities such as interdivisional transactions and reliance on estimates of future costs and revenues, must ensure that the information they provide to investors is not misleading.”
The SEC’s order finds that GE violated the antifraud, reporting, disclosure controls, and accounting controls provisions of the securities laws. Without admitting or denying the order’s findings, GE agreed to cease and desist from future violations of the charged provisions, pay a $200 million penalty, and report for a one-year period to the SEC regarding certain accounting and disclosure controls in its insurance and power businesses.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
