US industrial giant General Electric (GE) is to pay a $200m (£150m) penalty to settle charges brought by the Securities and Exchange Commission over disclosure failures in its power and insurance businesses
In 2017 and 2018, GE’s stock price fell almost 75% as challenges in its power and insurance businesses were disclosed to the public.
According to the SEC, 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 regulator said 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 SEC said 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.
Stephanie Avakian, SEC director of the division of enforcement, said: ‘Investors are entitled to an accurate picture of a company’s material operating results.
‘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.’
The SEC said 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 the $200m penalty, and report for a one-year period to the SEC regarding certain accounting and disclosure controls in its insurance and power businesses.