As reported today in Bloomberg, GE Pays $50 Million to Resolve SEC Accounting Probe. The biggest conglomerated corporation on the planet, General Electric had been caught red-handed in falsifying accounting records to please "investors". I wonder how long this has been going on, really. And GE settled with the SEC for a measly $50m penalty. This is a joke, surely.
SEC Enforcement Director Robert Khuzami said in a statement that "Overly aggressive accounting can distort a company’s true financial condition and mislead investors." Duh!
GE, perhaps most infamous for its CEO Jack Welch and his adultery, was under SEC investigation at least four years and covered the company’s finance, aviation, health-care and energy units, twice forcing GE to restate earnings. But this was not about Welch, as he retired in 2001.
The SEC’s probe and GE’s internal investigation led the company to restate net income twice and adjust results two other times. The changes cut cumulative net earnings by $280 million, or 0.24 percent, between 2001 and 2007...
The SEC complaint is here, and provides interesting reading on the machinations of a mega-corporation using taxpayers' dollars to defraud investors. As one example, the SEC alleged GE was "reckless"
In the period from January 2001 though December 2006, GE used hedge accounting to account for interest rate swaps held for the purpose of hedging interest rate exposure on its CP [Commercial Paper] issuances, resulting in smoother reported earnings.
The first claim in the SEC complaint was "Fraud In Connection With The Purchase Or Sale Of Securities in Violation of Exchange Act § 10(b) and Rule 10b-5."
The second claim was "Fraud in the Offer or Sale of Securities Arising from Treatment of CP Hedging and "Bridge Financing" Transactions in Violation of Securities Act § 17(a)."
The fourth claim was "Reporting of False and Misleading Information in Annual Statements in Violation of Exchange Act § 13(a) and Rules 12b-20 and 13a-1."
There are several other claims, but it all amounts to lying and cheating.
In its defense, GE said it paid about $200 million in legal and accounting expenses on this case alone. So, GE expended $250m in fines and fees to pay for its Six Sigma penny pinching fanaticism, i.e., fraud.
Zac Bissonnette at Blogging Stocks surmised that the 2008 bailout of Wall Street, and GE Capital, suggested that the US taxpayer is going to pay the fine, not GE. Keep in mind that in November 2008 F.D.I.C. Backs $139 Billion in GE Capital Debt. Wrote Zac about this new penalty,
...it was chump change in the context of the volume of federal assistance the company has already received.
Did you know that mega-corporations like GE pay no taxes? Worse than that, they get a paycheck from the US Treasury every year!!! Corporate Income Taxes in the Bush Years tells how the corporate lobbyists and Bush enacted laws to cut corp tax rates and take away $100 billion a year from the Treasury that could have gone to universal health care. Interestingly enough,
From 2001 to 2003, the Commerce Department reports that pretax corporate profits grew by 26 percent. But over that same period, corporate income tax payments to the federal government fell by 21 percent.
From 2001 through 2003 the report shows that "General Electric topped the list of corporate tax break recipients, with $9.5 billion in tax
breaks over the three years." I.e., the US taxpayer cut GE a $9.5 billion check. We are paying our taxes to GE. GE lies to us about its transactions, and we pay their penalty.
Your humble diarist wants to know why this was not a criminal indictment? The SEC basically told GE not to do it again, and GE admitted no wrongdoing. Their corporate officers got off scot free.
