General Electric charged in accounting fraud
— -- Specifically, the SEC accused GE of inflating its earnings and revenue in 2002 and 2003 so it could beat investors' expectations, misleading investors as a result.
The SEC accused GE of four separate accounting violations involving false bookkeeping for investments, including commercial paper and interest-rate swaps, as well as sales of locomotives and aircraft-engine spare parts.
"We intend to pursue any company, regardless of reputation or size, if that company misused the accounting rules to achieve a result," says David Bergers, director of the SEC's Boston office.
GE agreed to pay a $50 million fee to settle the charges. It neither admitted nor denied any allegations made by the SEC. The company says it corrected errors in regulatory filings between May 2005 and February 2008.
The charges are just the latest embarrassment for the company, which has been one of the most widely held stocks by investors for years.
Earlier this year, the company lost its prized AAA debt rating from Standard & Poor's. And late last year, GE turned to Warren Buffett's Berkshire Hathaway for a cash infusion in exchange for a preferred stock that paid a steep 10% annual dividend.
GE's shares this year are down 14.7%, lagging behind the Standard & Poor's 500 and Dow Jones industrial average, which are up 11.3% and 6.2%, respectively.
The SEC charges come after a string of three earnings restatements from GE, says Mark Cheffers of accounting information provider Audit Analytics. The SEC's strongly worded statement did not, as is common in such investigations, thank GE for cooperating in the investigation.
The SEC staff "must have been very upset with what they saw," Cheffers says. In its own release, GE says it "cooperated with the SEC over the course of its investigation."
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