SEC fines GE $200M, disclosure failures of cost estimate changes at core of penalty

Dive Brief:

General Electric has agreed to pay a $200 million penalty to settle charges for disclosure failures in its power and insurance businesses, the Securities and Exchange Commission (SEC) announced.
The company misled investors by describing its GE Power profits without explaining that one-quarter of them in 2016, and nearly half in the first three quarters of 2017, stemmed from reductions in its prior cost estimates.
"GE's repeated disclosure failures across multiple businesses materially misled investors about how it was generating reported earnings and cash growth as well as latent risks in its insurance business," SEC's enforcement division director Stephanie Avakian said.

Dive Insight:

In 2017 and 2018, GE's stock price fell almost 75% as challenges in its power and insurance businesses were disclosed to the public.

In addition to its disclosure failures about GE Power profits, the company also failed to tell investors its reported increase in industrial cash collections came at the expense of cash in future years and came primarily from internal receivable sales between GE Power and GE's financial services business, GE Capital, the SEC said.

Additionally, between 2015 and 2017, GE lowered projected costs for claims against its long-term care insurance portfolio and failed to inform investors of the corresponding uncertainties resulting from lower estimates of future insurance liabilities, at a time of rising costs from long-term health insurance claims.

"Companies like GE, with complexities such as inter-divisional transactions and reliance on estimates of future costs and revenues, must ensure that the information they provide to investors is not misleading," John Dugan, associate director of enforcement in the SEC's Boston Regional Office, said.

In its order, the SEC said GE violated antifraud, reporting, disclosure controls and accounting controls provisions of securities laws. Without admitting or denying the findings, GE agreed to stop the practices in the order, pay the penalty and report for a one-year period to the SEC on its controls.