General Electric loses shares after accusation of “fraud larger than Enron”

The whistleblower who exposed Bernard Madoff’s Ponzi scheme has accused General Electric of wide-scale fraud, sending the US conglomerate’s share price into a tailspin.

In a report titled General Electric, a Bigger Fraud Than Enron, the investigator, Harry Markopolos, claims GE is engaging in accounting fraud worth $38bn. He said GE was heading for bankruptcy and was hiding $29bn in long-term care losses.

“GE’s $38bn in accounting fraud amounts to over 40% of GE’s market capitalization, making it far more serious than either the Enron or WorldCom accounting frauds,” Markopolos wrote, referencing two of the largest corporate scandals in history.

After a year-long investigation for an unidentified hedge fund, Markopolos said he had discovered “an Enronesque business approach that has left GE on the verge of insolvency”. Enron, a Texas-based energy group, filed for bankruptcy in 2001, brought down by a huge accountancy scandal.

This report is “going to make this company probably file for bankruptcy”, Markopolos told CNBC’s Squawk on the Street. “WorldCom and Enron lasted about four months … We’ll see how GE does.”

In a statement, GE said it “stands behind its financials” and operates to the “highest level of integrity” in its financial reporting. “We remain focused on running our business every day and will not be distracted by this type of meritless, misguided and self-serving speculation.”

GE’s share price sank close to 15% after the report was released.

General Electric is already under investigation by the Securities and Exchange Commission (SEC), the US’s top financial watchdog, and the justice department over accounting irregularities related to its insurance and power divisions.

Once the world’s most valuable company, GE has struggled in recent years. The former chief executive and chairman John Flannery was abruptly removed last year after only a year on the job and replaced by Lawrence Culp, once the head of the Danaher conglomerate.

On Thursday, Culp dismissed Markopolos’s report. “GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple,” he said.

Markopolos is best known for his role as the whistleblower who warned the SEC about Madoff’s Ponzi scheme. Madoff was jailed for 150 years in 2009 after pleading guilty to swindling investors out of $65bn in savings.