GE Warns of Likely SEC Accusations Tied to Reserves; Shares Fall, , on October 6, 2020 at 7:34 pm

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On October 6, 2020
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(Bloomberg) — General Electric Co. sank after the company warned that it’s likely to face U.S. Securities and Exchange Commission allegations of wrongdoing tied to a previously disclosed accounting probe.The company received a so-called Wells notice Sept. 30 advising that the SEC may pursue a civil enforcement action over possible securities violations tied to an old insurance business, according to a GE regulatory filing Tuesday. The SEC has yet to decide whether to recommend action on issues related to GE’s power-equipment business that are also under investigation.The Wells notice signals a new phase in a wide-ranging SEC investigation that began before Chief Executive Officer Larry Culp took the reins two years ago. In early 2018, months after Culp’s predecessor, John Flannery, took over from Jeffrey Immelt, GE disclosed a $6.2 billion charge related to an insurance portfolio of long-term care policies and said it would pay $15 billion over seven years to fill a shortfall in reserves.“GE has fully cooperated with the SEC’s investigation related to past reserve practices at our run-off insurance subsidiary, as we have disclosed since 2018,” the Boston-based company said in an email. “We strongly disagree with the recommendation of the SEC staff and will provide a response through the Wells notice process.”The SEC declined to comment.GE shares erased gains to fall 4% to $6.16 at 3:02 p.m. in New York. The company revealed the SEC probes of its insurance reserves and power division during an epic two-year corporate collapse in which GE shed more than $200 billion in market value. Long-Term CareWhile GE hadn’t conducted any new insurance business in the long-term care market since 2006, by early 2018 it was still saddled with obligations on contracts written years earlier. The liabilities can swell when claims costs are higher than expected or when investment income fails to meet projections — a problem exacerbated by low interest rates.Last year, a prominent financial examiner working with an unidentified short seller said GE would need to increase its reserves immediately by $18.5 billion in cash. The examiner, Harry Markopolos, who had raised concerns over investment manager Bernie Madoff before his fraud was exposed, said GE would also need to take an additional noncash charge of $10.5 billion when new accounting rules take effect.Separately, GE took a $22 billion charge in the power-equipment unit in October 2018, shortly after Culp became CEO. The SEC, which was already looking into GE’s long-term service agreements with power customers, expanded its inquiry to include the charge as well.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.,

GE Warns of Likely SEC Accusations Tied to Reserves; Shares Fall(Bloomberg) — General Electric Co. sank after the company warned that it’s likely to face U.S. Securities and Exchange Commission allegations of wrongdoing tied to a previously disclosed accounting probe.The company received a so-called Wells notice Sept. 30 advising that the SEC may pursue a civil enforcement action over possible securities violations tied to an old insurance business, according to a GE regulatory filing Tuesday. The SEC has yet to decide whether to recommend action on issues related to GE’s power-equipment business that are also under investigation.The Wells notice signals a new phase in a wide-ranging SEC investigation that began before Chief Executive Officer Larry Culp took the reins two years ago. In early 2018, months after Culp’s predecessor, John Flannery, took over from Jeffrey Immelt, GE disclosed a $6.2 billion charge related to an insurance portfolio of long-term care policies and said it would pay $15 billion over seven years to fill a shortfall in reserves.“GE has fully cooperated with the SEC’s investigation related to past reserve practices at our run-off insurance subsidiary, as we have disclosed since 2018,” the Boston-based company said in an email. “We strongly disagree with the recommendation of the SEC staff and will provide a response through the Wells notice process.”The SEC declined to comment.GE shares erased gains to fall 4% to $6.16 at 3:02 p.m. in New York. The company revealed the SEC probes of its insurance reserves and power division during an epic two-year corporate collapse in which GE shed more than $200 billion in market value. Long-Term CareWhile GE hadn’t conducted any new insurance business in the long-term care market since 2006, by early 2018 it was still saddled with obligations on contracts written years earlier. The liabilities can swell when claims costs are higher than expected or when investment income fails to meet projections — a problem exacerbated by low interest rates.Last year, a prominent financial examiner working with an unidentified short seller said GE would need to increase its reserves immediately by $18.5 billion in cash. The examiner, Harry Markopolos, who had raised concerns over investment manager Bernie Madoff before his fraud was exposed, said GE would also need to take an additional noncash charge of $10.5 billion when new accounting rules take effect.Separately, GE took a $22 billion charge in the power-equipment unit in October 2018, shortly after Culp became CEO. The SEC, which was already looking into GE’s long-term service agreements with power customers, expanded its inquiry to include the charge as well.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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