SEC ramps up probe into General Electric accounting
US industrial conglomerate General Electric (GE) is facing further investigation into its accounting practices by the Securities and Exchange Commission (SEC), this time relating to a $22bn (£17bn) write-down from the company’s power business, it has revealed
31 Oct 2018
At the beginning of the year, GE revealed it had reviewed its GE Capital insurance portfolio, and decided to take a $6.2bn after-tax charge in the fourth quarter of 2017 and contribute $15bn over the next seven years to shore up the portfolio's reserves.
The SEC then announced an investigation into both the process that led to the insurance reserve increase and the fourth-quarter charge, as well as an assessment of GE's revenue recognition and its controls for long-term service agreements.
This is referenced in the latest regulatory filing to the SEC by GE, which states: ‘In late November 2017, the SEC notified us that they are conducting an investigation of GE’s revenue recognition practices and internal controls over financial reporting related to long-term service agreements.
‘Following our investor update on January 16, 2018 about the increase in future policy benefit reserves for GE Capital’s run-off insurance operations, as discussed in the critical accounting estimates section of our annual report on Form 10-K, the SEC staff expanded the scope of its investigation to encompass the reserve increase and the process leading to the reserve increase.’
Now GE has said the SEC probe has been extended to include the goodwill charge in its power business.
In the regulatory statement GE said: ‘Following our announcement on October 1, 2018 about the expected non-cash goodwill impairment charge related to GE’s power business, the SEC expanded the scope of its investigation to include that charge as well.
‘We are providing documents and other information requested by the SEC staff, and we are cooperating with the ongoing investigation.
Staff from the Department of Justice (DOJ) are also investigating these matters, and we are providing them with requested documents and information as well.
‘These cases are at an early stage; we believe we have defences to the claims and are responding accordingly.’
The company is already under investigation by the DOJ in relation to its now defunct WMC mortgage business, which was a subsidiary of GE Capital, over alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
In its regulatory submission, GE confirmed it has a reserve of $1.5bn to deal with this ongoing investigation.
General Electric SEC filing is here
Report by Pat Sweet