Harry Markopolos Talks GE Fraud Thesis With CNBC
Forensic accountant and financial fraud investigator Harry Markopolos is perhaps best known for producing early research suggesting Bernie Madoff was running on a Ponzi Scheme. On Thursday, he dominated financial headlines again for publishing a report against General Electric Company (NYSE: GE).
In an interview with CNBC, he defended his personal financial motives and investment thesis.
Who He Works For
Markopolos acknowledged his research was conducted in conjunction with a hedge fund that has a short position in GE. On CNBC, he said he can't name which hedge fund he's working with but acknowledged it's a U.S.-based midsize fund.
"I need to get paid," he said. "I have a family to support."
The Thesis: 'Numbers Are Missing'
Markopolos said GE's earnings report shows standard top-line revenue with bottom-line profit but "nothing in between," including expenses, R&D and SG&A. The company is the lone standout in its industry to not provide working capital metrics in its reports.The word "current ratio" (measure of ability pay financial obligations) "doesn't appear" in an annual report.
"Name a company that does that," Markopolos said. "That's accounting 101."
His deep-dive into GE led him to conclude the company has $18.5 billion in immediate cash needs for reserves on top of a $10.5 billion non-cash reserve hit they need to take on their GAAP books. This could "destroy their equity ratios" and needs to be done prior to new accounting rules coming online in early 2021.
Why Take This Public
The decision to go public with a report instead of engaging in private talks with GE was done to prevent any possibility of the company "destroy documents" as part of a cover up, he said.
Markopolos said his financial investigations helped put many financial criminals in jail over the years and always has been an advocate for shareholder rights and transparency.
GE has said it stands behind its numbers and operates with the "highest level of integrity" in its financial reporting. The company said it can't comment on any specific allegations of wrongdoing since it hasn't seen the report.
GE's stock traded lower by 12.4% to $7.91 per share Thursday afternoon.
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