Ge said on tuesday it was facing possible action by the us securities and exchange commission over its 2018 admission that its legacy insurance liabilities would be $15bn more than expected.
Shares in the industrial conglomerate fell as much as 4.3 per cent to $6.12 on tuesday afternoon after ge disclosed that the sec had given notice that it may bring a civil lawsuit for possible securities laws violations relating to its accounting practices.
In january 2018, ge shocked investors with news that it needed to add billions more to its insurance reserves. that month it disclosed that the sec had begun investigating how ge calculated those reserves.
Later in 2018, ge also announced a $23bn impairment charge in its power business, leading the sec to expanding its probe.
Ge said that on september 30 of this year the sec had issued a wells notice, a formal step that the markets regulator takes towards the end of investigations as its lawyers prepare to recommend an enforcement action to the secs five commissioners.
Such a notice is neither a formal allegation nor a finding of wrongdoing. it provides the target of an investigation the opportunity to present its perspective before a final decision is made by sec staff on whether to recommend any action.
Ge has been informed that the issues the sec staff may recommend that the sec pursue relate to the historical premium deficiency testing for ge capitals run-off insurance operations, as well as ges disclosures relating to such run-off insurance operations, the company said in a filing.
Sec cases involving large companies are typically settled without any court action or an admission of wrongdoing by the entity under investigation. in its filing, ge noted that the sec could impose financial penalties or injunctions against future violations of securities law.
A spokesperson for the company said it had fully co-operated with the secs probe. we strongly disagree with the recommendation of the sec staff and will provide a response through the wells notice process, the spokesperson said. the sec declined to comment.
Ge said in its filing it was continuing to provide documents to the sec in relation to the scrutiny of its power business and that no preliminary decision by sec staff had been made on that issue.
In 2009, ge agreed to pay us authorities $50m to settle earlier charges that it had misled investors by reporting materially false and misleading results. it did not admit or deny those allegations.
The news is another blow to a company that has separately been accused of fraud by uk tax authorities that are demanding $1bn in back taxes. ge denies the false claims and has countersued hm revenue & customs.
The impact of covid-19 has also weighed on chief executive larry culps attempts to turn the group round. the company lost $2.2bn in the three months to the end of june, as orders in its aviation business fell 56 per cent year on year and its power business suffered a 42 per cent drop in orders.