Harry Markopolos: General Electric Is Heading For Bankruptcy

Bernie Madoff whistleblower Harry Markopolos discusses his fraud allegations against General Electric Company (NYSE:GE) with CNBC’s “Squawk on the Street”. He says the company’s finances are ‘unsustainable.’

Madoff whistleblower Harry Markopolos: GE is heading for bankruptcy

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Transcript

You say in your report that this is akin to an Enron and Worldcom combined. Obviously, a lot has changed since those two scandals. What do you believe? Is the role of the public company Accounting Oversight Board? What's the role of their external auditors? For all of these people missing the mark here?

Yes, the gatekeepers have consistently failed Wall Street, look at the global financial crisis. All the bank's got a clean bill of health and the Big Four accounting firms and from the regulators. And it turns out, they had hundreds of billions and toxic assets sitting offshore and special purpose vehicles that no one saw including the rating agencies.

You didn't speak with the company? Why not?

Harry Markopolos: I prefer just use the financial statements. I didn't want to let them know what's coming. I didn't want to engage, have them engage in a cover up and destroy documents?

I mean, it begs the question, there's going to be some criticism, criticism out there that, you know, given the fact you are working with an undisclosed hedge fund, given the fact that the stock is 6% lower today, that even if these allegations don't turn out to be true, that you know, there's still a conflict of interest here. How do you counter that?

Harry Markopolos: I needed I needed to get my team engaged. And I put a team of experts on this. And the public deserves to know the shareholders deserve to know I've been a big advocate for investor protection. I've done many cases on behalf of investors, including the foreign currency cases, I did the cases against the many Ponzi schemes the current including Bernie Madoff, and several other billion dollar plus hedge funds, that have been ponzis put a lot of people in prison over the years. And I'm just continuing that trend. And I need to get paid. I have a family to support in terms of the long term care business. Certainly that's been raising quite a number of eyebrows is such a huge skeleton that came out of the closet. Back in March, they had their quote, unquote, teaching. I think a lot of folks on Wall Street were expecting maybe those reserve numbers to be increased when they didn't, it was seen as something of a turning point for the stock. How did you get to your numbers? And why do you think the current numbers are wrong? We went to the statutory filings of HG reinsurance Counterparty for long term care. And we pulled the regulatory filings for the years 2013 to 2018. And we saw all the losses falling on the GS books. And we saw how much premium dollars they were taking in and what their last ratio is where g is losing $5 and 27 cents for each dollar premium income, they are taking it. Those losses are unsustainable, and they're growing at an exponential rate. For 2018. They grew at 60% rate, it's growing exponentially. And it's going to make this company probably file for bankruptcy.

Two things this is a dynamic is not specific to GE, right. It's an industry dynamic the way people live longer. We've been over this already they've been they've telegraphed this to a large degree. So how is there any different than Unum and AIG? And if the liabilities take place over several decades, why would you take a charge for that? Now? Why wouldn't you be able to take a charge of that over time, usually reserved in advance so that you can invest the money in the bond market and earn returns on it so that you have the money to pay claims when they come do and GE hasn't done that?

Harry Markopolos: So they're not going to have the money in the future to pay these claims. And that's going to lead to bankruptcy for GE and if you want to compare it to Unum, whose loss ratios for 2018 or 90%, which means that they took out $1 premiums and paid out 90 cents, so they were profitable for Prudential at 1%. For GE 527% many times greater, it's unsustainable, and it's growing.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver