There was a time when General Electric could do no wrong. We well remember the Jack Welch era, where it was GE that was teaching the world how to compete and how to succeed. Now the corporate giant is being investigated by the Securities and Exchange Commission for possibly 
withholding information that would have affected the stock price.
Most recently General Electric has caught the eye of the SEC in regard to a new revelation that the company intentionally failed to disclose information in regard to an insurance loss of $6.2 billion. That is something like failing to acknowledge that there’s an elephant in your kitchen.
It was during the era of CEOs Welch and Immelt where the company became heavily invested in the financial arena with the General Electric Capital Division. It became GE’s largest business, far exceeding in value the olden days of locomotives and light bulbs. GE Capital focused itself on credit cards, mortgages and insurance. It has cost the company billions in write-down’s, and so much for executives who extoll themselves as always being the best and the brightest.
The news of these losses on top of the billions in other losses, goes to the very heart of GE’s mistakes and dubious executive leadership decisions. The company has apparently had problems in being as forthright as they could be which means they love double speak and muddy waters. The SEC is not buying the flowery language.
General Electric: SEC Investigates
Most recently the agency has launched an investigation into statements that CFO Jamie Miller made in regard to what she called, “revenue recognition and controls” for the company’s long-term service agreements.
What it really seemed to mean, is that the core business, insurance, was failing badly but the conglomerate was hesitant to detail its true effect on the financials.
“We are cooperating fully with the investigation, which is in very early stages,” Miller said.
GE has promised that it will restate its 2016 and 2017 quarterly numbers. A restatement generally means that by intention or through an “accident” the impact was much worse than originally expressed and they neglected to report it.
The GE Capital Division has been largely underwriting nursing home and assisted living insurance costs. Last week GE announced that they conducted a “comprehensive review” and found that the insurance portfolio needs cash. It is the obvious conclusion to selling insurance; sooner or later you have to pay off on long-term care policies. It is no secret that healthcare costs have skyrocketed and we are living longer.
GE makes a lot of healthcare equipment and you would have thought someone might have figured out that they would have to increase their insurance reserves. The company has known about this for a long time, and that’s the crux of the problem. Last week they admitted to the $6.2 billion cost to satisfy the policies but they conceded it may be as high as $15 billion to boost to their insurance reserves. The SEC is reviewing the company. The SEC wants to understand the company’s recent losses and why their business strategies have led them to speculate they will need a huge sum of money to make good (to cover) on their policies. It possibly shows very poor decision making and poor accounting practices. The investors could stand to lose a great deal of money.
Once bitten, twice shy
Were this investigation an aberration, Wall Street might not be so gun-shy about GE but it should not be forgotten that in 2009 the company was charged with accounting fraud. They never admitted they did anything wrong, but it cost them $50 million in fines. Wall Street analysts blame all of GE’s problems on poor executive decisions and confusing accounting practices. Executives have left the company as the ship has taken on water.
Scott Davis, a stock analyst has stated:
“We can’t be certain that prior management misled investors, but we certainly believe there were ethical lapses that deserve attention.”
That’s what it all ultimately comes down to with GE – ethics. It has been poor ethics that led to decisions to withhold information and to over-complicate the accounting process. In the corridors of GE, with its high-flying management principles and sophisticated R&D, no one questioned the need for ethical accountability.
When an entity, no matter it’s size, forgets the ethical component then the company is guaranteed to fail.
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