The assertion sounded outrageous: General Electric (GE), the eternal Siemens rival and a heavyweight in the US industry, hid a $ 38 billion hole in his balance sheets, Harry Markopolos claimed. The man is not just any analyst. He warned early on of one of the biggest US financial scandals of recent decades and is now acting as a kind of private investigator. His word has weight. As a result, the stock plunged immediately after saying on US television, "GE is facing bankruptcy." But is Markopolos as independent as it used to be? GE boss Larry Culp does not believe that. "This is simply price manipulation," he told the stock market broadcaster CNBC. Culp pointed out that Markopolos had written his 175-page report on behalf of a hedge fund. Markopolos himself also disclosed this in the report. The fund is speculating on falling prices of General Electric.
"GE works at the highest level of integrity and stands by its financial reporting," states a company statement.
Markopolos already knows that you do not believe him. He had already in the early 2000s, the US Securities and Exchange Commission on inconsistencies in Bernard Madoff's alleged investment activities made aware. Markopolos had then worked as a stockbroker for a Boston investment firm that lost customers to Madoff. His boss challenged him to imitate Madoff's strategy. But that turned out to be impossible - even after Markopolos got internal documents. So he became convinced that Madoff was a cheater. But the SEC investigators did not believe the unknown trader, but trusted Madoff's integrity. After all, he was one of the most respected investors in Wall Street at the time, including chairman of the technology exchange Nasdaq.
It was not until the financial crisis that Madoff's pyramid scheme collapsed: too many investors at the same time demanded their money back in 2008, and not enough new investors entrusted Madoff with their capital. So he could no longer pay the old investors with the money of the new investors. Madoff was sentenced to 150 years in prison in 2010 for bringing in at least $ 18 billion to thousands of investors.
Markopolos' recent attack on GE relies on company reports to shareholders and regulators, as well as databases that Markopolos and his team have raided for more than seven months. In essence, there are two allegations: First, GE billion losses from the business with long-term care insurance. GE states in its statement that the provisions are in line with the rules and are sufficient.
The second major irregularity the financial detective wants to expose is the rating of Baker Hughes. GE took over the oil and gas extraction specialist in 2017. Meanwhile, the group has begun to sell its shares again. According to Markopolos, GE is overvaluing shares in the books by $ 9 billion. GE rejects the claim.
Not too long ago, Markopolos's allegations would have been blasphemy. General Electric is an American icon.
The company, which was said to represent something like the US economy on a small scale with its broad product range, has shaped modern day-to-day life like no other. In 1892, the financier forced JP Morgan, who, inspired by the new technology, to be the first to provide his Manhattan city villa with electric light, Thomas Edison, to merge with a competitor. The name of the new company that was powered by the banker with capital and the inventor with ideas: General Electric. It did not stop at the famous light bulb. There was a time when GE made everything from the nuclear power plant to the electric toothbrush that had to do with electricity and power. And if they were not the first manufacturer of a new product, then at least the Americans would do everything in their power to become the market leader. So GE became a role model worldwide - not least, Siemens had to let its successes hold up.
But the 127-year-old US company has recently lost credibility enormously. His stock was one of the values that Charles Dow summarized in 1896 as his first market barometer. GE flew out of the Dow Jones Index last summer, which holds the shares of the 30 most important US companies.