For Future ReferenceThis is how GE is reacting to the short attack on them:
GE bounced back Friday after the CEO shored up confidence by purchasing a bulk of company shares, and analysts defended the industrial giant. GE’s stock was up more than 8% on Friday following its biggest drop since April 2008 a day earlier. The shares had tanked 11% on Thursday.
The stock began its downward spiral Thursday morning after Harry Markopolos, best-known for pointing out irregularities with Bernie Madoff’s investment strategy years before the Ponzi scheme was exposed, published a report accusing GE of fraudulent financial statements.
Larry Culp, who took over the struggling industrial conglomerate last year, bought 252,200 shares for $7.93 each, according to a Thursday evening filing with the SEC. The CEO has roughly doubled his holding of GE shares this week.
In the 175-page report, Markopolos accused GE of $38 billion in accounting fraud — “bigger than Enron and WorldCom combined.” He outlined a “long history” of accounting fraud at GE, dating to as early as 1995, when it was run by Jack Welch.
“It’s going to make this company probably file for bankruptcy,” Markopolos told CNBC’s “Squawk on the Street ” on Thursday. “WorldCom and Enron lasted about four months. ... We’ll see how GE does.”
A U.S. hedge fund, which Markopolos wouldn’t name, paid Markopolos to conduct the report. Markopolos told CNBC that he was getting a “decent percentage” of profits that the hedge fund would make from betting against GE.
Culp, who is a former CEO of Danaher, said the accusations were false, and driven by incentives to profit off of GE’s stock drop. “GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple,” he said in a statement. “Mr. Markopolos’s report contains false statements of fact and these claims could have been corrected if he had checked them with GE before publishing the report.”
Leslie Seidman, a GE board director and chair of its audit committee, also pushed back on the Markopolos report, which she said contained “numerous novel interpretations and downright mistakes about the actual accounting requirements.”
“In his own words, he stands to personally financially benefit from today’s significant market reaction to his report,” she said Thursday. “He is selectively front-running widely reported regulatory processes and rigorous investigations without the benefit of any access to GE’s books and records.