GE is $200 Million Poorer, $200 Billion Wiser
The industrial giant will pay a fine to settle SEC charges that it misled investors, but its drop in market value since 2017 has already forced changes.
GE’s settlement with the SEC is a small price to pay for a big step forward in regaining credibility.
Photographer: Daniel Acker/BloombergFor General Electric Co., a true recovery “must entail a restoration of credibility and a reckoning with the tendency toward obfuscation that allowed its cash-flow and balance-sheet challenges to lurk beneath the surface for so long.” I wrote that sentence in 2019, but it could have appeared in any number of columns over the past three-plus years. And on this front, GE took a major step forward on Wednesday.
The company agreed to pay $200 million to settle a Securities and Exchange Commission charge that it misled investors about the financial circumstances leading up to its drastic drop in market value in 2017 and 2018 and painted an aggrandized picture of its material operating results. This included: failing to disclose that large chunks of the “profits” in its power division came from adjusting previous cost estimates on an accounting basis; declining to tell investors that it bolstered the cash-flow numbers for that unit by borrowing from future years and selling accounts-receivable balances to its GE Capital financial arm; and not being clear with shareholders about the risks it was taking by lowering projections for claims in a legacy long-term care insurance business at a time when the costs associated with such policies were climbing and it should have been doing the opposite. In short, GE appears to have pulled a variety of levers to make its financial statements look a lot healthier than its businesses actually were.