GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

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PrettyCoolWorkshop
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GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by PrettyCoolWorkshop » Thu Aug 15, 2019 10:42 am

I do not have much to add to the story, more info is at the link below.

https://www.cnbc.com/2019/08/15/ge-shar ... nting.html

The guy that did the whistleblowing is an interesting fellow- he is a forensic accountant. His claims should be credible. The market obviously thinks these claims are credible. EDIT per advice of MichCPA: Markapolos also has a short position against GE. His general strategy of forensic accounting seems to involve researching companies heavily to discover potential fraud, and if found, taking a short position before releasing a report. His long run motives are obviously to be as accurate as possible to be believable, but his interests are apparent.

https://en.wikipedia.org/wiki/Harry_Markopolos
Last edited by PrettyCoolWorkshop on Thu Aug 15, 2019 11:01 am, edited 1 time in total.
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samsdad
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by samsdad » Thu Aug 15, 2019 10:51 am

Actionable?

In other news, one of their 6DJ8 vacuum tubes from the 60s sounds great in my dad’s amplifier.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by almostretired1965 » Thu Aug 15, 2019 10:53 am

samsdad wrote:
Thu Aug 15, 2019 10:51 am
Actionable?
Well, if he turns out to be right, GE is going to fall a lot more than 13% .........

A

MichCPA
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by MichCPA » Thu Aug 15, 2019 10:58 am

PrettyCoolWorkshop wrote:
Thu Aug 15, 2019 10:42 am
I do not have much to add to the story, more info is at the link below.

https://www.cnbc.com/2019/08/15/ge-shar ... nting.html

The guy that did the whistleblowing is an interesting fellow- he is a forensic accountant. His claims should be credible. The market obviously thinks these claims are credible.

https://en.wikipedia.org/wiki/Harry_Markopolos
You should edit to add that he has a short position against the stock. There is a financial interest here and that should be stated in the post.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Carlos Danger » Thu Aug 15, 2019 11:02 am

samsdad wrote:
Thu Aug 15, 2019 10:51 am
Actionable?
If he's right, it could be the exogenous event that brings on the next crash.

GE is rated BBB. (It doesn't deserve to be, it should be rated as junk). If he's right, and proven so, even the hacks at the ratings agencies will have no choice but to downgrade GE to junk. Guess what pension managers have to do to GE debt if it's downgraded to junk? SELL. Not make plans to sell, not wait for the right moment to sell. They have to sell and take the price the market gives.

BBB debt market is around 4x the size of the junk market. GE's debt alone is equivalent to 10% of the ENTIRE junk market.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by PrettyCoolWorkshop » Thu Aug 15, 2019 11:04 am

MichCPA wrote:
Thu Aug 15, 2019 10:58 am
PrettyCoolWorkshop wrote:
Thu Aug 15, 2019 10:42 am
I do not have much to add to the story, more info is at the link below.

https://www.cnbc.com/2019/08/15/ge-shar ... nting.html

The guy that did the whistleblowing is an interesting fellow- he is a forensic accountant. His claims should be credible. The market obviously thinks these claims are credible.

https://en.wikipedia.org/wiki/Harry_Markopolos
You should edit to add that he has a short position against the stock. There is a financial interest here and that should be stated in the post.
Edited, with a bit of additional detail. Yeah Markopolos seems to be quite a "finance vigilante." If he is accurate in the long run, he stands to profit by performing some old fashioned sleuthing and muckraking. Whether he is accurate in this case is not yet determined.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Vanguard Fan 1367 » Thu Aug 15, 2019 11:15 am

There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by TropikThunder » Thu Aug 15, 2019 11:19 am

Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
Sounds like straight up manipulation to me.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by PrettyCoolWorkshop » Thu Aug 15, 2019 11:21 am

Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
I believe that there is a fairly large amount of case law about this, and it is fairly nuanced. Speculatively, it is probably fair to say that all of Markopolos's research material was sourced from publicly available documents. All he did was interpret this information in a more accurate way than most other researchers.

If he had access to priveleged internal documents it would be an issue.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by StandingRock » Thu Aug 15, 2019 11:34 am

PrettyCoolWorkshop wrote:
Thu Aug 15, 2019 11:21 am
All he did was interpret this information in a more accurate way than most other researchers.
Maybe, maybe not, I never heard of the guy, GE has been in dire straits for a while now, that's no secret, I was not surprised to read above that he is working an angle on it.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Stinky » Thu Aug 15, 2019 11:36 am

A big part of the problem with GE is the exposure to long-term care business.

Many life insurers have problems with long-term care, Ge’s is worse than most. Much of their exposure is on the older policies, which were more mispriced then more current policies. Additionally, a lot of the exposure was through reinsurance assumed from other companies, so the information flow isn’t as crisp as if the policies were written directly.

Unfortunately, it will take several decades to finally run off all the old LTC policies. As people in general live longer, both the incidence and severity of claims is much larger than was ever expected. Interest rates at historically low levels for the last decade don’t help.

What a mess for GE!
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Caduceus » Thu Aug 15, 2019 11:45 am

Something stinks about his research though. He was hired by a hedge fund, with an incentive to produce a report that would send GE shares down, because a good part of his compensation for producing that report is tied to the value of his/the fund's short position in GE. Hardly an unbiased way to start.

I don't own any GE stock, and when I read their financial statements I find them hard to understand - too many interlocking assumptions.

He may well be right, but it also strikes me as a fairly self-interested report and self-interested financial arrangement.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by ThrustVectoring » Thu Aug 15, 2019 12:00 pm

Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
Insider trading isn't about having an unfair advantage in the market. Being able to better price a security is an overall social good, since it means that capital is allocated more efficiently and we have more of the companies that give consumers what they want.

No, insider trading is about theft. Corporate insiders have a duty to use the information acquired as part of their job in the corporation's best interest. Insider trading is a violation of that duty. The classic example is an insider buying shares in an acquisition target before it's publicly announced.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by PluckyDucky » Thu Aug 15, 2019 12:03 pm

Caduceus wrote:
Thu Aug 15, 2019 11:45 am
Something stinks about his research though. He was hired by a hedge fund, with an incentive to produce a report that would send GE shares down, because a good part of his compensation for producing that report is tied to the value of his/the fund's short position in GE. Hardly an unbiased way to start.

I don't own any GE stock, and when I read their financial statements I find them hard to understand - too many interlocking assumptions.

He may well be right, but it also strikes me as a fairly self-interested report and self-interested financial arrangement.
Sometimes these people are wrong. Or they are right, but things just don't go their way soon enough. Look at Bill Ackman and Herbalife. Icahn helped prop up Herbalife stock against Ackman's attacks and he ended up with big losses. Now Herbalife is back to where it was when Ackman started, possibly headed even lower.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Valuethinker » Thu Aug 15, 2019 12:09 pm

ThrustVectoring wrote:
Thu Aug 15, 2019 12:00 pm
Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
Insider trading isn't about having an unfair advantage in the market. Being able to better price a security is an overall social good, since it means that capital is allocated more efficiently and we have more of the companies that give consumers what they want.

No, insider trading is about theft. Corporate insiders have a duty to use the information acquired as part of their job in the corporation's best interest. Insider trading is a violation of that duty. The classic example is an insider buying shares in an acquisition target before it's publicly announced.
We had a lawyer on here a few years ago. Just reflecting back what was said then.

In the USA insider trading stems from the law around fiduciary duty to shareholders. Thus employees of a company or its advisers can insider trade. It's hard to get an external 3rd party on insider trading unless you can prove they were told something that they should not have been and then acted on it.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Valuethinker » Thu Aug 15, 2019 12:11 pm

TropikThunder wrote:
Thu Aug 15, 2019 11:19 am
Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
Sounds like straight up manipulation to me.
Markopolos (who was warning the SEC about Madoff years before it all blew up) is not publishing information, he is publishing opinion based upon his analysis of publicly available information. He's not guilty of insider information if he used only publicly available information in his analysis.

You or I could do the same. If it moved the stock price then we are not guilty of manipulation.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by almostretired1965 » Thu Aug 15, 2019 12:18 pm

Caduceus wrote:
Thu Aug 15, 2019 11:45 am
Something stinks about his research though. He was hired by a hedge fund, with an incentive to produce a report that would send GE shares down, because a good part of his compensation for producing that report is tied to the value of his/the fund's short position in GE. Hardly an unbiased way to start.

I don't own any GE stock, and when I read their financial statements I find them hard to understand - too many interlocking assumptions.

He may well be right, but it also strikes me as a fairly self-interested report and self-interested financial arrangement.
This is a legitimate point, however, we should note that he is up front about all of it. He also has an independent reputation that suggests he is unlikely (never say never) to behave in an unprofessional manner. We will know soon enough if his analysis is correct.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Chicago60 » Thu Aug 15, 2019 12:23 pm

Valuethinker wrote:
Thu Aug 15, 2019 12:09 pm

Thus employees of a company or its advisers can insider trade.
I do not know what makes you believe this statement.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by whodidntante » Thu Aug 15, 2019 12:28 pm

This is terrible news for Rick Ferri's hedge fund. And the stakeholders of GEnron, I guess.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by shorvath » Thu Aug 15, 2019 12:31 pm

Chicago60 wrote:
Thu Aug 15, 2019 12:23 pm
Valuethinker wrote:
Thu Aug 15, 2019 12:09 pm

Thus employees of a company or its advisers can insider trade.
I do not know what makes you believe this statement.
I think he means "can" as in "able to", versus "can" as in "allowed to". If you aren't associated with a company, you can't ever commit insider trading wrt the company. Because you are not an insider.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Chicago60 » Thu Aug 15, 2019 12:37 pm

shorvath wrote:
Thu Aug 15, 2019 12:31 pm
Chicago60 wrote:
Thu Aug 15, 2019 12:23 pm
Valuethinker wrote:
Thu Aug 15, 2019 12:09 pm

Thus employees of a company or its advisers can insider trade.
I do not know what makes you believe this statement.
I think he means "can" as in "able to", versus "can" as in "allowed to". If you aren't associated with a company, you can't ever commit insider trading wrt the company. Because you are not an insider.
Your interpretation of what he meant might be correct, and might explain the statement. But this statement is not accurate: "If you aren't associated with a company, you can't ever commit insider trading wrt the company. Because you are not an insider." though I suppose it depends on what you mean by "associated with a company" Tippers and tippees are often "not associated" and yet are criminally or civilly guilty of insider trading.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by ohai » Thu Aug 15, 2019 12:40 pm

Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
It's not insider trading if they did not use material non-public information. There is nothing illegal about releasing equity research, and since they are not a broker or dealer, they are not front running any clients by pre emptively entering into a short positions. In fact, many hedge funds practice this sort of activity regularly - just not on this scale.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by nisiprius » Thu Aug 15, 2019 12:45 pm

It is important to contrast what is happening to GE today with the way it was spoken of twenty years ago. GE was then considered to be completely safe, one of the best-managed companies in the world if not the best-managed, your platonic ideal of a "blue chip." The only question about it was the efficient-market consideration. Conventional opinion held that it was a completely safe buy, certain to do well, the only question was whether it was too conservative and boring--so well-respected that its stellar reputation was already priced in.

After all, it wasn't "really" like an ordinary company stock. It was engaged in thirty separate businesses--every single one of them one of the top three in its field globally. It was so diversified, it was really more like a mutual fund than a single stock. And talk about stability, it had been one of stocks in the Dow Jones Industrial Average since the DJIA was created in 1896.

The only real dissenting opinions were those who thought no, it was not just a great stock, it was better than that. This is what the authors of "Dow 36,000" wrote about GE in 1999:
Above all, GE is flexible. In 1990, after the Berlin Wall fell and the company’s managers concluded that Eastern Europe was going to open up to the world, the company bought a majority share of the Hungar- ian firm Tungsram, which owned the international rights to valuable lighting technologies. Tungsram has helped boost the efficiency of cap- ital invested in the lighting division of GE by 15 percent annually.

As the 1993 annual report put it, “We run this company on a simple premise: the only way to win, in the brutally competitive global environment in which we operate, is to get more output from less input in all 12 of our businesses and, by doing so, become the lowest-cost producer of high-quality goods and services in the world. We believe the only way to gain more output from less input--to grow and win--is to engage every mind within our businesses—exciting, energizing, involving and rewarding everyone.”

But judge GE's deeds, not its words. At a growth rate of just 5 percent, we would be comfortable with a P/E of 100 for a company like General Electric. But GE is increasing its dividends at twice that pace, and its P/E in mid-1999 was only 36 (a significant number). It was, by our conservative standards, trading two-thirds below its perfectly reasonable price.
Last edited by nisiprius on Thu Aug 15, 2019 12:49 pm, edited 3 times in total.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by shorvath » Thu Aug 15, 2019 12:46 pm

Chicago60 wrote:
Thu Aug 15, 2019 12:37 pm
shorvath wrote:
Thu Aug 15, 2019 12:31 pm
Chicago60 wrote:
Thu Aug 15, 2019 12:23 pm
Valuethinker wrote:
Thu Aug 15, 2019 12:09 pm

Thus employees of a company or its advisers can insider trade.
I do not know what makes you believe this statement.
I think he means "can" as in "able to", versus "can" as in "allowed to". If you aren't associated with a company, you can't ever commit insider trading wrt the company. Because you are not an insider.
Your interpretation of what he meant might be correct, and might explain the statement. But this statement is not accurate: "If you aren't associated with a company, you can't ever commit insider trading wrt the company. Because you are not an insider." though I suppose it depends on what you mean by "associated with a company" Tippers and tippees are often "not associated" and yet are criminally or civilly guilty of insider trading.
The tippee becomes associated by receiving the privileged information, when there is evidence/etc that the tippee knew that it was supposed to be confidential. Then the question is how did the tipper acquire the info.

If you have an example of a tipper with no connection/responsibility to the company being convicted of insider trading rather than wire fraud or similar that would be interesting.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by TomatoTomahto » Thu Aug 15, 2019 12:48 pm

^ 1. a good reminder to diversify,
2, a good reminder to not “over specify” the allowable investments in your bequests.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by nisiprius » Thu Aug 15, 2019 1:03 pm

whodidntante wrote:
Thu Aug 15, 2019 12:28 pm
...This is terrible news for Rick Ferri's hedge fund...
Does Rick Ferri run a hedge fund? Or did you mean to mention some other name?
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by ThrustVectoring » Thu Aug 15, 2019 1:07 pm

ohai wrote:
Thu Aug 15, 2019 12:40 pm
Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
It's not insider trading if they did not use material non-public information. There is nothing illegal about releasing equity research, and since they are not a broker or dealer, they are not front running any clients by pre emptively entering into a short positions. In fact, many hedge funds practice this sort of activity regularly - just not on this scale.
Material non-public information is fine to use, so long as you don't acquire it from insiders at the company. If you count cars in parking lots with satellites, that's completely legal non-public information to trade off of.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by diy60 » Thu Aug 15, 2019 1:13 pm

nisiprius wrote:
Thu Aug 15, 2019 1:03 pm
whodidntante wrote:
Thu Aug 15, 2019 12:28 pm
...This is terrible news for Rick Ferri's hedge fund...
Does Rick Ferri run a hedge fund? Or did you mean to mention some other name?
Probably refers to the BH 2019 hedge fund contest where RF is currently long on GE.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by TropikThunder » Thu Aug 15, 2019 1:14 pm

Valuethinker wrote:
Thu Aug 15, 2019 12:11 pm
TropikThunder wrote:
Thu Aug 15, 2019 11:19 am
Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
Sounds like straight up manipulation to me.
Markopolos (who was warning the SEC about Madoff years before it all blew up) is not publishing information, he is publishing opinion based upon his analysis of publicly available information. He's not guilty of insider information if he used only publicly available information in his analysis.

You or I could do the same. If it moved the stock price then we are not guilty of manipulation.
I guess my point is more from an ethical perspective rather than a legal one. Like the opening scene in Casino Royals where the bad guy shorted the airline stock because his lackey was going to blow up the plane (rusty plot summary I’m sure).

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by anoop » Thu Aug 15, 2019 1:14 pm

What happens to the people with policies from GE if they declare bankruptcy, especially those that are actively making claims?

Any chance they would end up getting bailed out a la GM?

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by ohai » Thu Aug 15, 2019 1:18 pm

anoop wrote:
Thu Aug 15, 2019 1:14 pm
What happens to the people with policies from GE if they declare bankruptcy, especially those that are actively making claims?

Any chance they would end up getting bailed out a la GM?
I don't know where those claimers fall in the payment ladder, but my base assumption would be that they are toast.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by tlk59 » Thu Aug 15, 2019 1:22 pm

No idea about this situation, but it's certainly true that Markopolos was right about Madoff when most were wrong. He went to the SEC three different times I think, and they did some perfunctory checks with Madoff and shrugged their shoulders.

He wasn't without incentive in the Madoff thing though. For one thing, his boss was pressuring him to generate the kind of returns Madoff was getting. 15%, rain or shine, up or down market. It's just common sense to think that kind of performance unlikely. Markopolos built math models to demonstrate why. Unfortunately it looks like his presentations were too academic for the SEC to grok.
Last edited by tlk59 on Thu Aug 15, 2019 1:33 pm, edited 1 time in total.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by nisiprius » Thu Aug 15, 2019 1:22 pm

Apart from the minor details that it might not have been true, and I might not be remembering correctly, I read that a classic example was the hypothetical example of someone on an airliner coming in for a landing, seeing the Acme factory in flames, and [story antedates cell phones] running to a phone when the plane lands and shorting Acme stock. The piece said that such an act could well be considered "insider trading," even though you did not work for Acme and acquired the information legally. If news of the fire wasn't publicly known yet, then acting on it could be considered "insider trading."
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by nisiprius » Thu Aug 15, 2019 1:26 pm

ohai wrote:
Thu Aug 15, 2019 1:18 pm
anoop wrote:
Thu Aug 15, 2019 1:14 pm
What happens to the people with policies from GE if they declare bankruptcy, especially those that are actively making claims?

Any chance they would end up getting bailed out a la GM?
I don't know where those claimers fall in the payment ladder, but my base assumption would be that they are toast.
If was long-term-care insurance, or any other kind of life or health insurance, they would have some degree of protection from their state's life and health guaranty association. Details vary by state, not everything is covered 100%, there are caps and limits, the protection is not "insurance" and the associations have a lot of discretion to handle each insolvency on a case-by-case basis... but not "toast" in the sense of "get in line at bankruptcy court."

This protection is poorly understood by consumers because insurers prefer that consumers not know about it, and have influenced states to write the guaranty association laws that prohibit advertising the existence of this protection.

Everyone with life or health insurance should familiarize themselves with the details by going to this NOLHGA web page, selecting their own state, and reading the FAQ.
Last edited by nisiprius on Thu Aug 15, 2019 1:28 pm, edited 2 times in total.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by ThrustVectoring » Thu Aug 15, 2019 1:27 pm

anoop wrote:
Thu Aug 15, 2019 1:14 pm
What happens to the people with policies from GE if they declare bankruptcy, especially those that are actively making claims?

Any chance they would end up getting bailed out a la GM?
There's a Guaranty Association that covers policies up to certain region-specific limits when issuers go bankrupt. Also claimants will have some sort of standing to recover assets from the corpse of GE as well, not sure on details, but if that's not enough there's another backstop that society provides.
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cashmoney
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by cashmoney » Thu Aug 15, 2019 1:30 pm

anoop wrote:
Thu Aug 15, 2019 1:14 pm
What happens to the people with policies from GE if they declare bankruptcy, especially those that are actively making claims?

Any chance they would end up getting bailed out a la GM?


Most likely be taking over by state's guaranty association and claims would be paid out to at least each state set minimum of 300,000.00.Also possible but not likely in this case that another insurer would buy the book of business pay claims according to the LTC contract.

https://www.kiplinger.com/article/insur ... iness.html

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by jminv » Thu Aug 15, 2019 1:30 pm

Caduceus wrote:
Thu Aug 15, 2019 11:45 am
Something stinks about his research though. He was hired by a hedge fund, with an incentive to produce a report that would send GE shares down, because a good part of his compensation for producing that report is tied to the value of his/the fund's short position in GE. Hardly an unbiased way to start.

I don't own any GE stock, and when I read their financial statements I find them hard to understand - too many interlocking assumptions.

He may well be right, but it also strikes me as a fairly self-interested report and self-interested financial arrangement.
It's hard not to have biases here since without it, there would be no reason to go to the effort to write this report. The other side - management at GE - is also self interested and has been hiding the full scale of the LTC reinsurance issue for years (plus the other issues he also noted in his report). The insiders do so to continue making money at GE, prop up the value of their stock options, and avoid losing control of the company (their jobs) in a bankruptcy. I don't think it's a mark against Markopolos that he's making money going against the existing market view of the state of GE, which has been propped up by misleading management disclosures. If not for money, why else would someone put effort into this? Even with internal whistleblowers, it's normally to hope to receive monetary compensation. He made money today when their stock went down and if there's a long term bet against them, he will make money if the various regulators, including the Kansas Insurance Department, force GE to accelerate existing reserve commitments (KID allowed GE to do it over 7 years since GE is broke but might force them to accelerate given the public scrutiny) and make further crippling reserves for the LTC policies. Since GE has basically no cash flow, it won't be something they could do which would trigger bankruptcy. Because of this, I'd take Markopolos and his story over GE's interpretation of it. The truth, though, likely lies somewhere in the middle but is probably enough to eventually trigger a bankruptcy.

Everyone knew that GE had a LTC reinsurance problem but this puts a new light on how bad it actually is.

When Markopolos wrote his report to the SEC against Madoff, he did so thinking it was a Ponzi scheme but hoping for it just to be illegal behavior that would net him a 10% of SEC fines recovery. He said as much in his report to them. This isn't so much different except now he knows to release his findings to the public, too, since relying on the SEC alone is pointless as he found out last time - the SEC managed to audit Madoff and conveniently found nothing.

What I don't like about his research is his writing style. It makes it more difficult to take him as seriously as one otherwise would. I guess it grabs attention, though. His communication is not as effective as it could otherwise be.

It's fairly clear that GE management originally wrote these policies to bring in earnings back then to meet street requirements, knowing full well that it would be many years, ie until after they retired, that the full scale of the garbage they wrote took down the company. That, and the people that were sent there to write this garbage to bring in premiums had no experience in insurance, which was most likely by design. These reinsurance contracts are also much different than consumer policies, because GE doesn't get to raise rates which is why it will continue to spiral out of control until the policy holders are no longer around. Management also lied to investors when they said they willingly kept the LTC reinsurance in the early 2000s when in fact, they couldn't find a buyer. I would seriously distrust anything GE says given their track record.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by dm200 » Thu Aug 15, 2019 1:44 pm

I recall many discussions years ago that GE stock was great to own because, it was alleged, because of its diversified businesses - it was just like a Mutual Fund! :oops:

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by SuperSaver1975 » Thu Aug 15, 2019 1:46 pm

Vanguard Fan 1367 wrote:
Thu Aug 15, 2019 11:15 am
There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank?
I read this guy's book on the Madoff scandal. He's a very good forensic accountant. I'm not a lawyer, but it seems to me that as long as the information he is using is legit, and the conclusions are legit, why shouldn't he be able to make some money after he's done the work to determine a proper valuation of the company? There are lots of people out there, either asleep at the wheel or committing deliberate fraud if this guy is correct. If he's wrong, then I'd expect GE to sue him for everything he's got. But I don't see any problem with making money off this. He did the work that others should have already done.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Stinky » Thu Aug 15, 2019 2:02 pm

ThrustVectoring wrote:
Thu Aug 15, 2019 1:27 pm
anoop wrote:
Thu Aug 15, 2019 1:14 pm
What happens to the people with policies from GE if they declare bankruptcy, especially those that are actively making claims?

Any chance they would end up getting bailed out a la GM?
There's a Guaranty Association that covers policies up to certain region-specific limits when issuers go bankrupt. Also claimants will have some sort of standing to recover assets from the corpse of GE as well, not sure on details, but if that's not enough there's another backstop that society provides.
Agreed that there are guaranty funds, that would protect policyholders if the insurance company went broke.

But the insurance companies are a separate legal entity from the GE holding company. State Insurance departments and commissioners put solvency of the insurance companies as a high priority, and can restrict shareholder dividends, etc. if insurers are under strain.

So folks insured by GE companies have three layers of defense - GE Holding, the insurance company, and the guaranty fund. That’s not to say that some policyholders won’t be left holding the bag, but we’re a long ways away from that.
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by ohai » Thu Aug 15, 2019 2:05 pm

Caduceus wrote:
Thu Aug 15, 2019 11:45 am
Something stinks about his research though. He was hired by a hedge fund, with an incentive to produce a report that would send GE shares down, because a good part of his compensation for producing that report is tied to the value of his/the fund's short position in GE. Hardly an unbiased way to start.

I don't own any GE stock, and when I read their financial statements I find them hard to understand - too many interlocking assumptions.

He may well be right, but it also strikes me as a fairly self-interested report and self-interested financial arrangement.
Of course it is self interested - all price discovery and market efficiency rely on this behavior.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by AZAttorney11 » Thu Aug 15, 2019 2:12 pm

This news created a buying opportunity for some:

https://www.cnbc.com/2019/08/15/stanley ... -culp.html

Hedge fund manager Stanley Druckenmiller said he bought General Electric shares on Thursday during the stock’s double-digit plunge brought about by a report from Madoff whistleblower Harry Markopolos accusing the conglomerate of an Enron-like fraud.

“I believe Culp...I bought stock today,” Druckenmiller told CNBC’s Kelly Evans in a statement."

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by catalina355 » Thu Aug 15, 2019 2:20 pm

jminv wrote:
Thu Aug 15, 2019 1:30 pm
Caduceus wrote:
Thu Aug 15, 2019 11:45 am
Something stinks about his research though. He was hired by a hedge fund, with an incentive to produce a report that would send GE shares down, because a good part of his compensation for producing that report is tied to the value of his/the fund's short position in GE. Hardly an unbiased way to start.

I don't own any GE stock, and when I read their financial statements I find them hard to understand - too many interlocking assumptions.

He may well be right, but it also strikes me as a fairly self-interested report and self-interested financial arrangement.
It's hard not to have biases here since without it, there would be no reason to go to the effort to write this report. The other side - management at GE - is also self interested and has been hiding the full scale of the LTC reinsurance issue for years (plus the other issues he also noted in his report). The insiders do so to continue making money at GE, prop up the value of their stock options, and avoid losing control of the company (their jobs) in a bankruptcy. I don't think it's a mark against Markopolos that he's making money going against the existing market view of the state of GE, which has been propped up by misleading management disclosures. If not for money, why else would someone put effort into this? Even with internal whistleblowers, it's normally to hope to receive monetary compensation. He made money today when their stock went down and if there's a long term bet against them, he will make money if the various regulators, including the Kansas Insurance Department, force GE to accelerate existing reserve commitments (KID allowed GE to do it over 7 years since GE is broke but might force them to accelerate given the public scrutiny) and make further crippling reserves for the LTC policies. Since GE has basically no cash flow, it won't be something they could do which would trigger bankruptcy. Because of this, I'd take Markopolos and his story over GE's interpretation of it. The truth, though, likely lies somewhere in the middle but is probably enough to eventually trigger a bankruptcy.

Everyone knew that GE had a LTC reinsurance problem but this puts a new light on how bad it actually is.

When Markopolos wrote his report to the SEC against Madoff, he did so thinking it was a Ponzi scheme but hoping for it just to be illegal behavior that would net him a 10% of SEC fines recovery. He said as much in his report to them. This isn't so much different except now he knows to release his findings to the public, too, since relying on the SEC alone is pointless as he found out last time - the SEC managed to audit Madoff and conveniently found nothing.

What I don't like about his research is his writing style. It makes it more difficult to take him as seriously as one otherwise would. I guess it grabs attention, though. His communication is not as effective as it could otherwise be.

It's fairly clear that GE management originally wrote these policies to bring in earnings back then to meet street requirements, knowing full well that it would be many years, ie until after they retired, that the full scale of the garbage they wrote took down the company. That, and the people that were sent there to write this garbage to bring in premiums had no experience in insurance, which was most likely by design. These reinsurance contracts are also much different than consumer policies, because GE doesn't get to raise rates which is why it will continue to spiral out of control until the policy holders are no longer around. Management also lied to investors when they said they willingly kept the LTC reinsurance in the early 2000s when in fact, they couldn't find a buyer. I would seriously distrust anything GE says given their track record.
Agreed. If the SEC was doing it's job then Markopolos would not have a job.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by IowaFarmBoy » Thu Aug 15, 2019 2:22 pm

I thought GE had spun off Genworth and that most (all?) of the LTC business was with placed with Genworth? Is Genworth truly a separate entity at this point or is GE still on the hook in some way- like providing reinsurance?

Edit: I just read the link and it does sound like GE is on the hook for a lot of LTC losses but I'm still curious about the relationship with Genworth since our policy is with Genworth.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by tesuzuki2002 » Thu Aug 15, 2019 2:29 pm

dm200 wrote:
Thu Aug 15, 2019 1:44 pm
I recall many discussions years ago that GE stock was great to own because, it was alleged, because of its diversified businesses - it was just like a Mutual Fund! :oops:
Like a mutual fund with high fees and shady practices...

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Stinky » Thu Aug 15, 2019 2:43 pm

IowaFarmBoy wrote:
Thu Aug 15, 2019 2:22 pm
I thought GE had spun off Genworth and that most (all?) of the LTC business was with placed with Genworth? Is Genworth truly a separate entity at this point or is GE still on the hook in some way- like providing reinsurance?

Edit: I just read the link and it does sound like GE is on the hook for a lot of LTC losses but I'm still curious about the relationship with Genworth since our policy is with Genworth.
Genworth is a separate company. It writes LTC business on a direct basis (my policy too).

I think that the majority of GE’s LTC business is reinsurance assumed from other companies. I don’t recall if any is assumed from Genworth.
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Atticus
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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Atticus » Thu Aug 15, 2019 2:51 pm

nisiprius wrote:
Thu Aug 15, 2019 12:45 pm
It is important to contrast what is happening to GE today with the way it was spoken of twenty years ago. GE was then considered to be completely safe, one of the best-managed companies in the world if not the best-managed, your platonic ideal of a "blue chip." The only question about it was the efficient-market consideration. Conventional opinion held that it was a completely safe buy, certain to do well, the only question was whether it was too conservative and boring--so well-respected that its stellar reputation was already priced in.

After all, it wasn't "really" like an ordinary company stock. It was engaged in thirty separate businesses--every single one of them one of the top three in its field globally. It was so diversified, it was really more like a mutual fund than a single stock. And talk about stability, it had been one of stocks in the Dow Jones Industrial Average since the DJIA was created in 1896.

The only real dissenting opinions were those who thought no, it was not just a great stock, it was better than that. This is what the authors of "Dow 36,000" wrote about GE in 1999:
Above all, GE is flexible. In 1990, after the Berlin Wall fell and the company’s managers concluded that Eastern Europe was going to open up to the world, the company bought a majority share of the Hungar- ian firm Tungsram, which owned the international rights to valuable lighting technologies. Tungsram has helped boost the efficiency of cap- ital invested in the lighting division of GE by 15 percent annually.

As the 1993 annual report put it, “We run this company on a simple premise: the only way to win, in the brutally competitive global environment in which we operate, is to get more output from less input in all 12 of our businesses and, by doing so, become the lowest-cost producer of high-quality goods and services in the world. We believe the only way to gain more output from less input--to grow and win--is to engage every mind within our businesses—exciting, energizing, involving and rewarding everyone.”

But judge GE's deeds, not its words. At a growth rate of just 5 percent, we would be comfortable with a P/E of 100 for a company like General Electric. But GE is increasing its dividends at twice that pace, and its P/E in mid-1999 was only 36 (a significant number). It was, by our conservative standards, trading two-thirds below its perfectly reasonable price.
Agreed - whether or not these accusations are substantiated, news like this is an excellent reminder for investors of non-systematic risks. Sooner or later, every individual company faces a day of reckoning. The ability to implement a buy-and-hold strategy with a very low level of oversight for individual holdings is a tremendous advantage of a passive approach, IMO.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Valuethinker » Thu Aug 15, 2019 3:49 pm

Chicago60 wrote:
Thu Aug 15, 2019 12:23 pm
Valuethinker wrote:
Thu Aug 15, 2019 12:09 pm

Thus employees of a company or its advisers can insider trade.
I do not know what makes you believe this statement.
Context

"Can insider trade. Which is a crime"

Confusingly to someone in Europe a 3rd party no associated with the company does not have a fiduciary duty to its shareholders so from what the lawyer here was saying they cannot have inside trading.

European securities law is broader than that. You don't have to be an employee or adviser to a company to commit the crime of insider trading.

This was in the context of the financial crisis and how members of Congress trading on bank stocks was not insider trading. Since they did not have a fiduciary duty to the shareholders, it was not. (I believe new laws since then have restricted them).

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Valuethinker » Thu Aug 15, 2019 3:56 pm

shorvath wrote:
Thu Aug 15, 2019 12:46 pm
Chicago60 wrote:
Thu Aug 15, 2019 12:37 pm
shorvath wrote:
Thu Aug 15, 2019 12:31 pm
Chicago60 wrote:
Thu Aug 15, 2019 12:23 pm
Valuethinker wrote:
Thu Aug 15, 2019 12:09 pm

Thus employees of a company or its advisers can insider trade.
I do not know what makes you believe this statement.
I think he means "can" as in "able to", versus "can" as in "allowed to". If you aren't associated with a company, you can't ever commit insider trading wrt the company. Because you are not an insider.
Your interpretation of what he meant might be correct, and might explain the statement. But this statement is not accurate: "If you aren't associated with a company, you can't ever commit insider trading wrt the company. Because you are not an insider." though I suppose it depends on what you mean by "associated with a company" Tippers and tippees are often "not associated" and yet are criminally or civilly guilty of insider trading.
The tippee becomes associated by receiving the privileged information, when there is evidence/etc that the tippee knew that it was supposed to be confidential. Then the question is how did the tipper acquire the info.

If you have an example of a tipper with no connection/responsibility to the company being convicted of insider trading rather than wire fraud or similar that would be interesting.
Precisely as in can as "able to".

It surprised me because the English law is broader than that. You don't have to be associated with the company in English law to have committed the offence of Insider Trading.

But it appeared from what was said here that the US law, arising out of a fiduciary duty to shareholders, has a narrower scope.

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Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

Post by Silence Dogood » Thu Aug 15, 2019 4:16 pm

Yet another example of the risks associated with investing in individual stocks.

Sad to see what has happened to what was once an iconic company.

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