GE pays $50M to settle SEC fraud suit
SEC charges General Electric misled investors by reporting false financial results four times between 2002-2003
NEW YORK (CNNMoney.com) -- The Securities and Exchange Commission on Tuesday filed a suit against General Electric claiming that it reported false results in its financial statements.
The suit is a result of a 4-1/2 year investigation, alleging that on four separate occasions in 2002 and 2003, GE approved financial result reporting that was not in compliance with Generally Accepted Accounting Principles (GAAP).
The SEC alleges that GE in 2002 improperly changed its accounting for sales of airplane engine parts that inflated the company's annual profit by $585 million. In 2002 and 2003, the company reported locomotive sales that had not yet occurred, increasing reported revenue by $370 million, the SEC said.
The claim also says GE improperly accounted for its interest rate swaps and commercial paper funding program in 2003.
In the case of the locomotive sales and commercial paper accounting, the SEC found that GE intentionally misled investors. In the other two cases, GE was found to be negligent.
"GE bent the accounting rules beyond the breaking point," said Robert Khuzami, director of the SEC's Division of Enforcement, in a statement."Overly aggressive accounting can distort a company's true financial condition and mislead investors."
The SEC said that in one instance, the false reporting helped GE to meet analysts' earnings per share expectations, when, if reported according to GAAP, the results would have missed those forecasts. GE reported results that met or exceeded analysts' consensus forecasts in every quarter from 1995 through 2004.
GE said it corrected the effects of the accounting mistakes between May 2005 and February 2008, and no further corrections are required.
"GE is committed to the highest standards of accounting," the company said in a statement. "The errors at issue fell short of our standards, and we have implemented numerous remedial actions and internal control enhancements to prevent such errors from recurring."