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General Electric Co. Fraud Case
Mitchell Lodge
Liberty University
Accounting 340
Professor Richard Stultz
September 30, 2022
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General Electric Company
The General Electric Company was started when the Edison Electric Company and
Thomson-Houston Electric Company merged in 1892, which was backed by J.P. Morgan. Other
than bringing electricity to Americans, it had their hand in financing, appliances, media, and
healthcare. GE generated over $100 billion in revenue in 2000. The company started to take a
downfall when the 2008 financial crisis happened, and their biggest division of the company
became a liability, and since then the company has been downhill, going through multiple fraud
cases and selling pieces of the company and currently splitting up into three different companies.
They will focus on aviation, healthcare, and energy with three new public companies.
General Electric vs Securities Exchange Commission
In 2009, the Securities and Exchange Commission charged General Electric with
accounting fraud. The SEC claimed GE “misled investors by reporting materially false and
misleading results” (Egan). General Electric agreed to pay $50 million to settle the charges.
2016-18 Fraud
In 2020, SEC released a Press Release on the company announcing they agreed to pay
$200 million to settle the fraud charges. These charges included disclosure failures in its energy
and insurance business. GE allegedly deceived investors by presenting the earnings from its GE
Power business without disclosing that a quarter of the company's profits in 2016 and nearly half
in the first three quarters of 2017 came from reductions in its prior cost estimates. The order also
finds that GE failed to disclose to investors that its reported increase in current industrial cash
collections came primarily from internal receivable sales between GE Power and GE Capital, the
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company's financial services division, and that this increase was coming at the expense of cash in
future years. GE also lowered projected costs for their long-term care insurances. The company
failed to inform investors of any of these violations, leading to the 75% stock drop when it was
disclosed to the public in 2018.
Ge failed to disclose to investors about info relating to the reported profit growth in the
power side as well as $2.5 billion in cash collections. GE’s profits of $2.5 billion of 2016 and
2017 stemmed from reductions in cost estimates, which was not told to investors on why they
were so high. GE increased industrial cash collections by taking future cash flows and moving
them to the present. The top shareholders of GE are H. Lawrence Culp, Jr., Russell Stokes,
Jeffrey S. Bornstein, T. Rowe Price Associates Inc., Vanguard Group Inc., and BlackRock Inc.
Fraud Triangle Relation
The Fraud Triangle is three reasons why someone or something (a company) would
commit fraud. The three reasons are Opportunity, Pressures, and Rationalization. In the case of
General Electric, they had all three reasons to commit this act of fraud. The company had the
opportunity to commit such acts, as it came from higher up decisions, they didn’t have anybody
above them to make sure nothing suspicious was going on at the time. The pressure to have this
view of high profits and promising values can hit anybody or any company when it seems like
the company is going downhill. This pressure to stay as one of the top companies could have
easily affected the CEO or CFO into ordering to have this act committed. Since GE was lying to
their investors and not disclosing information, protecting their stockholders doesn’t come to
mind, but keep the stock price high does tie into that slightly.
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References
7 worst accounting scandals in U.S. history. University of Nevada, Reno. (2021, November 22).
Retrieved September 30, 2022, from https://onlinedegrees.unr.edu/blog/worst-accounting-
scandals/#u2t5goxpz10n
Egan, M. (2020, December 10). GE misled investors before its stock imploded, SEC says | CNN
business. CNN. Retrieved September 30, 2022, from
https://www.cnn.com/2020/12/10/investing/ge-stock-investigation-sec-
settlement/index.html#:~:text=In%202009%2C%20the%20agency%20charged,pay%20a
%20%2450%20million%20penalty.
Mintz, S. (2016). 5. In Ethical Obligations & Decision Making in Accounting + Connect
Access Card. essay, Mcgraw-Hill Education.
Press release. SEC Emblem. (2020, December 9). Retrieved September 30, 2022, from
https://www.sec.gov/news/press-release/2020-312
sec. (n.d.). United States of America before the Securities and Exchange Commission ... sec.gov.
Retrieved September 30, 2022, from https://www.sec.gov/litigation/admin/2020/33-
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