General Electric has agreed to pay $200m to resolve Securities and Exchange Commission charges that it misled investors, the second such settlement by the company in little more than a decade.
The US securities regulator said on Wednesday that GE had failed to tell investors the measures it had used to improve cash flow and profits at its power business, and had hidden rising costs in its insurance arm.
“It’s really very simple: you must speak accurately about the manner in which you are meeting financial targets and about trends and uncertainties you are aware of in your business,” said Stephanie Avakian, the SEC’s director of enforcement.
The SEC’s investigation came after GE had made disclosures in 2017 and 2018 about its power and insurance businesses that drove its stock price down 75 per cent.
GE, which neither admitted nor denied the SEC allegations, said on Wednesday that the settlement would not require revisions to its financial statements.
“We have concluded that it is in the best interests of GE and its shareholders to settle this matter on the basis announced today,” a spokesperson said. Larry Culp, GE’s current chief executive, was appointed in October 2018, and the alleged disclosure failures took place between 2015 and 2017, when Jeff Immelt was CEO.
In addition to the fine, the settlement requires GE to co-operate with any potential related SEC actions and to report to the regulator about its internal accounting controls over the next year.
Through 2016 and 2017, GE had reported to investors rising profits in its power business, GE Power, without disclosing that a significant portion of the earnings arose from reductions in cost estimates for multiyear repairs and servicing agreements with power turbine buyers, the SEC alleged.
Also in those years, GE had reported increased cash flow, but failed to tell investors that this was driven by the sale of receivables to another GE unit, GE Capital. “They took from the future to benefit the present,” said Ms Avakian.
In GE’s insurance business, the company in 2015 and 2016 had failed to disclose “rising claim costs and the resulting potential for material insurance losses,” the SEC said in its order.
The case is not the first time the SEC has alleged material problems with GE’s financial statements. In 2009, the regulator fined GE $50m for using “improper accounting methods” to boost its earnings and revenue to “avoid reporting negative financial results”. GE also neither admitted nor denied the allegations in that case.
Shares in GE dipped by about 1 per cent in after-hours trading following Wednesday’s announcement.