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Thursday August 6, 2009

GE to pay US$50m to settle SEC fraud charges


BOSTON: General Electric Co will pay a US$50mil civil penalty to settle charges by the US Securities and Exchange Commission (SEC) that it misled investors with some fraudulent accounting in 2002 and 2003.

The SEC found that the largest US conglomerate had intentionally wrongly accounted for some commercial paper hedging activity and the sales of railroad locomotives, in an effort to make its financial results look better.

The world’s largest maker of jet engines and electricity-producing turbines said on Tuesday it did not admit or deny wrongdoing as part of the settlement.

”GE bent the accounting rules beyond the breaking point,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Overly aggressive accounting can distort a company’s true financial condition and mislead investors.”

Two other accounting irregularities, regarding how GE accounted for swap derivatives and for how it recorded profit on sales of spare parts for jet engines were negligent, but not intentional violations, the SEC found.

The news comes a day after the SEC, which got a new head in Mary Schapiro in January, reached a multimillion-dollar settlement with another major US company, Bank of America Corp. The bank said it had agreed to pay US$33mil to settle SEC charges that it had made false statements to investors about bonuses when it took over Merrill Lynch & Co.

The SEC said in court papers that GE had met or exceeded analysts’ profit targets in every quarter from 1995 through 2004, but said that its top accountants signed off on improper decisions to make its numbers look better.

”On four separate occasions in 2002 and 2003 ... high-level GE accounting executives or other finance personnel approved accounting which was not in compliance with Generally Accepted Accounting Principles so as to increase earnings or revenues or to avoid reporting negative financial results,” the SEC said.

”In one instance, the improper accounting allowed GE to avoid missing analysts’ final consensus EPS expectations,” the regulator said.

KPMG, GE’s auditor, was not named in the court papers. — Reuters


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