General Electric Company is moving to resolve a U.S. Securities and Exchange Commission investigation over what the company did with bad news.
GE has agreed to pay a $200 million penalty to the SEC and to give the agency regular reports, for one year, on efforts to improve accounting and disclosure controls, officials said.
The investigation involved what GE said about earnings at its GE Power business, and how the company handled deteriorating forecasts about the future performance of its long-term care insurance (LTCI) reinsurance business.
- A copy of the GE Wells notice is available here.
- An article about Fitch analysts see LTCI issuers is available here.
GE said in a settlement announcement that it cooperated with the SEC.
“The SEC’s order makes no allegation that prior period financial statements were misstated,” GE noted in a settlement announcement. “This settlement does not require corrections or restatements of GE’s previously reported financial statements, and GE stands behind its financial reporting.”
The SEC alleges in an administrative order that, at one point, GE intentionally used overly optimistic assumptions about how the health of people with LTCI coverage might improve over time, and that, at another point, the company changed the valuation date for some LTCI assumptions, in a way that kept losses for some items off of GE’s financial statements.
“Between 2004 and 2007, GE divested large portions of its insurance portfolio, but it was unable to completely exit the business,” according to the SEC order. “GE’s remaining insurance portfolio contained, among other things, billions of dollars’ worth of long-term care insurance policies that GE would be unable to sell without incurring billions in losses.
GE has neither admitted nor denied the allegations in the administrative order, GE said.
“We have concluded that it is in the best interests of GE and its shareholders to resolve this matter and put it behind us on the basis announced today,” GE said in a release. “The settlement concludes and resolves the SEC investigation of GE in its entirety.”
The settlement agreement calls for the SEC to keep documents GE is filing in connection with the settlement non-public.
GE made about $20 billion by selling a biological medical products business to Danaher in March.
The company has made a number of steps to improve its finances since then. It voluntarily contributed $2.5 billion to its pension plan for 2021, 2022 and 2023. GE also paid back $1.5 billion of an intercompany loan, and said it expects to reduce debt by about $14.5 billion this year.
— Read GE Responds to Markopolos LTCI Reinsurance Reserving Criticisms, on ThinkAdvisor.