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Stock Strategist

Is the End Near for GE?

We don't think so, and we're still confident in CEO Larry Culp.


Harry Markopolos, the forensic accountant who warned securities regulators about Bernie Madoff’s investment scheme, posted a 175-page missive on Aug. 15 that likened General Electric (GE) to Enron. His prose oscillated from mostly hyperbole to occasionally insightful. We’ve done our own analysis and disagree with Markopolos’ general conclusion that GE is a fraud. However, Markopolos is exactly right regarding the opacity of GE’s financial statements; new management has improved the company’s filings, but GE still has a long way to go in this regard.

Markopolos’ main points of contention are (1) GE’s insurance obligations are woefully underreserved and the company has been lying to the Kansas Insurance Department; (2) GE shouldn’t have consolidated BHGE’s financial statements, which are a source of confusion; and (3) GE’s evolving presentation makes it very difficult to evaluate the company’s operating performance.

Joshua Aguilar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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