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Madoff whistleblower Harry Markopolos calls GE a ‘bigger fraud than Enron’
- one2zero 7y agoWhat's hilarious is that if you look at the website gefraud.com and attempt to download the report take a look at the fine print. These guys SHORTED GE before they made this report public.... Edit: Guys, I understand the logic behind shorting GE, what I found funny was that they made it public that they had short positions in their disclaimer. IF I were in their position I would've shorted GE just like any other individual with this information.
- sseveran 7y agoThat is literally what short sellers do. They find something they don't like, short it, and then try to drive the price down through publicity.
- sokoloff 7y agoOr, they find something that has generally hidden flaws, short it, and then shine light on those flaws.
- SantalBlush 7y agoIt's not that strange. When people buy a stock, they'll pump it with positive stories too. Or they'll downplay any malfeasance.
- sschueller 7y agoI would too if I discovered such information and if they did it without insider information I don't see anything wrong with it.
- deleted 7y ago[deleted]
- Analemma_ 7y agoIf they have information that GE is overvalued, what should they do? If they don’t short, people like you go Taleb and accuse them of throwing out accusations with no skin in the game; if they do short, they get accused of making things up for profit. They can’t win.
- floatingatoll 7y agoThey can win, if they prove their case and it is found to be true and comes to pass as they say it will. Until then, the company being shorted will generally lash out regardless of the truth or not of their accusations.
- one2zero 7y agoBut you see, I didn't say that they were wrong or right. I merely was pointing out the fact that they put in their disclaimer that they did in fact have short positions on GE prior to publication.
- jkqwzsoo 7y agoYou didn’t “merely point it out”, you described it as “hilarious”. This implies that you view the disclosure as some sort of evidence of impropriety, as if you discovered what game they were truly playing or something. As others have told you, this is standard practice for short sellers, and the financial industry as a whole. What would you rather them do? Simply claim that GE is a fraud without having any stake in GE, long or short? Don’t you lend their claim more weight given that they’ve taken a financial position based on their belief? I would think that would be a more rational view.
- bart_spoon 7y agoGenerally at this point worrying about what Taleb and his fanboys think shouldn't be anyone's concern. They only "can't win" if they are concerned with fringe voices who are constantly looking for fights to pick.
- zaroth 7y agoDisclosure of a financial position when offering any kind of commentary on a stock is legally prudent if not explicitly required. I believe adding the disclosure serves as a mitigating factor if it turns out your analysis was bullshit, if the SEC tries to come after you for fraud.
- piker 7y agoBefore becoming too concerned with the fact that the author of this report is compensated based on the performance of the sponsoring fund's short position, one should note that it has been argued that allowing Enron insiders who knew of the irregularities to short Enron stock would have supplied a downward pressure that may have saved Enron employees millions of dollars. Many of those employees were investing 100% of their 401k into the stock at its peak.
- the_watcher 7y agoThe first part of this comment is accurate and important. The second part is pretty much always what fraudsters claim when caught: "I could make it all back given enough time, I just need that one big score!"
- wil421 7y agoThe FinTech company I work at offers ESPP and an option to invest in company stock for your 401k. I take full advantage of ESPP but sell it quickly. My coworkers have saved it and been through 3 splits and made a ton of money. The same coworker lost 10s of thousands when he worked for WorldCom/MCI in the late 90s. He’s probably even right now. I would never invest 100% of my 401k into my employers stock. Even 10% seems risky.
- cjarrett 7y agomy mother's 401k at the time, they were forced to buy company stock. Her company was also in the process of merging with Enron. Luckily, my father had a better plan so they ended up mostly investing in his and what was left over they invested in hers.
- sschueller 7y agoI can't download the report, I get a server error when submitting the form. Does anyone have a direct link?
- one2zero 7y agoDirect Link from CNBC: http://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2019/8/15/2019_08_15_GE_Whistleblower_Report.pdf http://fm.cnbc.com/applications/cnbc.com/resources/editorial...
- elliekelly 7y agoIt rubs me the wrong way that they require your name & email in order to access the report.
- sschueller 7y agoIs this the tipping point that will start the recession?
- nappy-doo 7y agoDoubt it. GE is small potatoes nowadays.
- whatok 7y agoI'm not agreeing with the previous poster but GE is anything but small potatoes nowadays. They have over 100bn in debt and there's a very real case where they get downgraded to high yield which is a near death sentence for an industrial company of their size.
- camjohnson26 7y agoThere’s much bigger problems with the economy than GE. See the yield curve inversion yesterday, the most reliable signal we have of a pending recession.
- theandrewbailey 7y agoMy bet is the trade war will be blamed as the reason for it. Looks like we're well underway.
- NikolaeVarius 7y agoI like they put their money where their mouth is and shorted GE. Actually puts their skin in the game before making accusations.
- joncrane 7y agoBy the same token, people who buy the stock before engaging in "pump and dump" have skin in the game before making their statements.
- kingnothing 7y agoI wonder if that could be considered securities fraud. They had insider knowledge that their report would damage the stock price of GE.
- sokoloff 7y agoIs it insider knowledge? Or merely non-public knowledge that they legally generated from their own research efforts?
- jdmichal 7y agoIf the information was synthesized from public knowledge, then it is fair game. Non-public is not determined by "how many people know this information".
- one2zero 7y agoPrior to the initial distribution of this Report on August 15, 2019, the Company also submitted this Report to the U.S. Securities and Exchange Commission’s Whistleblower Program and the U.S. Department of Justice’s FIRREA Whistleblower Program. Both or either of those submissions may generate profits for the Company independent of the financial performance of GE and/or the securities, derivatives, and other financial instruments of, and/or relating to, GE.
- dboreham 7y agoActually this is standard practice in the shorting industry and perfectly legal since the information is publicly available. It was entirely their goal to push the stock price down just as there are legions of folks trying to do the opposite (in perhaps not so immediately obvious ways).
- ptah 7y agoif this is based on public record, how come it is only exposed now
- rtb 7y agoThere are two economists – one young and one old – walking down the street together. The young economist looks down and sees a $20 bill on the street and says, “Hey, look a twenty-dollar bill!” Without even looking, his older and wiser colleague replies, “Nonsense. If there had been a twenty-dollar lying on the street, someone would have already picked it up by now.”
- SpicyLemonZest 7y agoLibor manipulation was on the public record years before the scandal blew up. Exposing anything but dirt-simple financial fraud is hard, even to people who know all the facts.
- Scoundreller 7y agoLibor was always a joke. If you’re looking for a loan, why would you care what the average rate is between a number of providers? You’re going to take the lowest rate, right? And then why would you throw out the lowest and highest values? One of those is the most competitive rates! It also didn’t say anything about depth of market. A bank may have loaned you $1 at a low rate, but maybe not any more than that. And then it was all self-reported, not based on market.
- derivagral 7y agoAmusingly(?..) LIBOR-style manipulation still exists in other markets! https://www.bloomberg.com/opinion/articles/2018-02-01/was-chicken-libor-manipulated-too https://www.bloomberg.com/opinion/articles/2018-02-01/was-ch... Strange to think that incentives like this are/were considered the best solution and can last so long.
- kaesar14 7y agoMalcolm Gladwell has a great piece about how all the information needed to piece together Enron's fraud was always available in public records. Worth a read. https://www.newyorker.com/magazine/2007/01/08/open-secrets-3 https://www.newyorker.com/magazine/2007/01/08/open-secrets-3
- ortusdux 7y agoGE has been a mess for a while now. I know many vendors that won't ink a deal with them because they always try and pay at the end of next quarter. Ironically, because everyone knows their tactics, they either end up paying more for reputable vendors that need an insurance buffer, or they end up with a worse product from fringe companies that are willing to roll the dice on getting paid.
- stcredzero 7y agoI know many vendors that won't ink a deal with them because they always try and pay at the end of next quarter. That soon? I've known companies with cash flow issues try to turn contractors' Net 30 or Net 90 into Net 180 and beyond.
- one2zero 7y agoThat's called NET Wednesday, Wednesday get around to paying you.
- joebubna 7y agoBada boom! Had me chuckling at that. Good one.
- Scoundreller 7y agoTook me a minute, but Wednesday sounds like “once Dey” ie: “once they”
- koolba 7y agoI read it as "Wenz dey", i.e. "When they get around...". It's funnier if you say it out loud in a 1930s Dick Tracy bad guy voice.
- patwolf 7y agoWe recently did work for a very large corporation that switched from net 60 to net 180. I'm not sure if they did it for cash flow reasons, but I doubt it. We're a small company, so it was tough for us considering we'd be paying developers 6-months of salary before we'd see a dime. They did conveniently offer financing so that we could get paid sooner, albeit with interest. It seemed to me like large corporations feel that they can strong-arm their vendors into unsavory terms because of their clout.
- camjohnson26 7y agoHere’s a quick blog post that points out a few problems with the report. https://brontecapital.blogspot.com/2019/08/the-flat-out-silly-markopolos-ge-report.html?m=1 https://brontecapital.blogspot.com/2019/08/the-flat-out-sill... It looks like Markopolis claimed GE’s margins were too good to be true, even though they’re below the industry average. Also he compares this section of the business with another company that GE spun off, seemingly not knowing that they were originally linked. Doesn’t seem like a very credible report if these 2 things are true.
- one2zero 7y agoYeah if GE was 7% of my portfolio I'd be running interference too. With a cost basis of est $ 9.99. https://whalewisdom.com/filer/bronte-capital-management-pty-ltd#tabholdings_tab_link https://whalewisdom.com/filer/bronte-capital-management-pty-...
- elliekelly 7y agoI'm torn because I've definitely heard plenty of rumblings about GE Capital over the past decade so the accusations certainly seem plausible. I feel like I even opened the report expecting to confirm the rumors I had heard. But I've only made it to page 5 and so far it's a lot of hot air without any substance. And the tone of the writing is needlessly flippant. It's difficult for me to take the report seriously. For example, this sentence raises red flags to me: > I won’t reveal every technique we used because every wannabe accounting fraudster out there is going to be reading this section closely looking at it as a “how not to get caught” primer. There’s no point in making them harder to catch than they already are. We're just supposed to take him at his word in order to protect ourselves from "wannabe accounting fraudsters" who might try to repeat what GE has done? That doesn't make sense to me. Revealing GE's supposed tricks would allow everyone else in the industry to better monitor for them.
- rz2k 7y agoI agree that it's not a credible statement. I do not think that their primary interest is the public good, even if the public good is ultimately a beneficiary of their possible discovery of fraud and shorting of GE. Releasing the statement is meant to fight the implications of the saying, "Markets can remain irrational a lot longer than you and I can remain solvent." In other words, they want the market to move faster toward the correction they believe GE should undergo. They are not disinterested, they need people to believe them. In fact, this type of statement in retrospect has been the biggest sign that Enron was a fraud that should have been discovered earlier. Typically a fund that has a black box producing returns trades at a lower price than its yields alone would justify. You get punished for not showing your work. Enron on the other hand claimed that their black box deserved a premium. GE could be a fraud, but when the messenger says not showing their work is a feature, there should be a presumption of shadiness.
- one2zero 7y agoDirect Link: http://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2019/8/15/2019_08_15_GE_Whistleblower_Report.pdf http://fm.cnbc.com/applications/cnbc.com/resources/editorial...
- mistrial9 7y agoI distinctly recall a USA top-ten business school with an ad for "Financial Engineering MBA" (yes, real math) showing a small, smiling brown-skinned woman in Fortune 500 business attire. At the same time, top management at GE mentioned "financial engineering" as a strength in the business press. Perhaps it is an obvious evolution of their complex asset leasing models from forty years ago to "financial engineering", but the implications of a USA engineering firm, outsourcing all the work and focusing on money tricks instead.. it just shouts everything that went wrong with American Business, to me.
- papito 7y ago"Financial engineering" is pillaging the company while diverting money into ludicrous bonuses and raises at the corporate office. The top skill of most MBAs is sorting an Excel sheet by salary, in descending order, and deleting the top 10 rows to "restructure".
- IfOnlyYouKnew 7y ago...and the top skill of most tech people is spreading superficial, malignant stereotypes of professions they fail to understand. Those include everything that is not a direct derivative of classical logic and mathematics, because they refuse to consider any creative or social domains to be "real". Because of this narrow view of the world, the tech crowd is constantly perplexed by the continuing dominance of that other tribe in their organisations as well as society at large. This inferiority complex causes them to indulge in ritualistic in-group demonisation, whereas the reverse manifests mostly in brief interludes of eye-rolling whenever the internet goes down.
- sleepysysadmin 7y agoI recently did an analysis of GE as well. Largely speaking found their numbers to be too good to be true.
- _-___________-_ 7y agoThe Affinity is built around the CFM56 core. Not a brand new turbofan, just a further development of a massively successful product. Edited to add: there was originally a lot of vague insinuations about the GE Affinity turbofan in the parent comment, but it was edited down from five paragraphs to one after I replied.
- tradeWar 7y agoAlso GE has been putting executives in jail with the help of the American government in order to put pressure and takeover foreign companies. https://www.bloomberg.com/news/articles/2019-01-15/-the-american-trap-an-executive-s-view-from-a-u-s-prison-cell https://www.bloomberg.com/news/articles/2019-01-15/-the-amer... https://www.counterpunch.org/2016/12/02/behind-ges-takeover-of-alstom-energy/ https://www.counterpunch.org/2016/12/02/behind-ges-takeover-... https://www.economist.com/business/2019/01/17/how-the-american-takeover-of-a-french-national-champion-became-intertwined-in-a-corruption-investigation https://www.economist.com/business/2019/01/17/how-the-americ...
- VladimirIvanov 7y agoMarlopolos point where he says the Baker Hughes investment should take a goodwill impairment charge is incorrect. GE is right when they point out that they own more 50% of the company so it needs to be consolidated.
- Grzegrzolka 7y agoI have friends working as senior developers for GE in Poland. Basically US branch outsource project to Polish brand because they are paid peanuts in comparison, then part of the work is outsourced to India branch which is paid even less. I have ZERO respect for American mega-corps.
- madengr 7y agoIs Poland outsourcing to India, or direct from America to India? The former reminds me of the guy who outsourced his own job to India?
- wil421 7y agoAt my last job I worked exclusively with our Europe branch and European customers. 75% of the developers I worked with were contractors or consultant companies they outsourced to. More than half also had offshore India teams. You’d recognize all the customers names and likely own their products.
- ummonk 7y agoWill the long term care insurance policyholders don't get screwed out of their policies if GE goes bankrupt?
- drewnick 7y agoEach state has a Guaranty Association that provides up to several hundred thousand dollars per policy for failed insurance companies. We've seen this story before with Penn Treaty which was liquidated in 2017. In California it's $560k. https://www.califega.org/ https://www.califega.org/
- tabtab 7y agoGE decided that playing financial tango is more profitable than manufacturing. Too many US companies become shell-game manipulators rather than shell makers. Maybe that's somehow fine and normal, but it's hard to sleep sound at night knowing the US economy's main product is financial tiddlywinks.
- astrodust 7y agoThis has been the end-goal since the 1980s when everyone realized there was way more money to be made in running companies into the ground to sell them off for scrap, raiding pension funds, and securitizing everything. Why make things when you can just make money?
- arbuge 7y agoAn alternative viewpoint: https://brontecapital.blogspot.com/2019/08/the-flat-out-silly-markopolos-ge-report.html?spref=tw https://brontecapital.blogspot.com/2019/08/the-flat-out-sill... As Charlie Munger says, always look at the incentives to understand people's behavior. Markopolos' sponsoring hedge funds are shorting GE: https://www.bloomberg.com/news/articles/2019-08-15/ge-drops-as-madoff-whistle-blower-levels-accounting-accusations?srnd=premium https://www.bloomberg.com/news/articles/2019-08-15/ge-drops-... "Markopolos is working with a hedge fund he didn’t identify and stands to benefit from bets that GE’s stock will decline, according to the Wall Street Journal, which reported earlier on the accounting report. Markopolos and his colleagues also hope to collect a whistle-blower reward by reporting their findings to regulators, the Journal said."
- msbarnett 7y ago> As Charlie Munger says, always look at the incentives to understand people's behavior. Should that include looking at the fact that GE constitutes ~7% of Bronte Capital Management’s portfolio? I’d want to spin things positively for them too, with that much skin on the line.
- eej71 7y agoWhile it can certainly color Bronte Capital's motivations, the author of the paper (John Hempton) has generally been forthright in his analysis of other companies and his analysis of GE doesn't seem different from his other comments.
- msbarnett 7y agoSure. But “they have skin in the game therefore the analysis is invalid irrespective of any actual criticism of the content of the analysis, which I have not bothered to mention” is OP’s insinuation, not mine. I’m just pointing out that that cuts both ways. If there’s a problem with Markopolus’ report it should be critiqued on its merits. OP didn’t bother to bring any of that forward and just focused on shortselling.
- tdaltonc 7y ago
- Ididntdothis 7y agoGE should be a warning for all management gurus. I still remember when Jack Welch was the idol of all managers and I read a lot about how GE was grooming the next generation of super managers. Turns out that Welch didn’t really create a company that could perform with excellence in the long run. Seems he was more of a one hit wonder.
- projektfu 7y agoActually, I'd say he was more of a fraud. It's been well known that under his administration GE earnings growth was basically linear and returned to typical volatility after he left, suggesting he was manipulating the figures to make it work. Meanwhile the company had sold off most of the businesses it was known for with the exception of light bulbs and aircraft engines.
- crb002 7y agoWow. Given CNBC is owned by GE.
- seren 7y agoIt was, it has been sold by GE a long time ago (at least 5 years). Maybe some of the staff still feels some sort of loyalty (or relief) I don't know but there is no reason now that CNBC should be more harsh or gentle on GE news.
- tamaharbor 7y agoScary thing is, anyone can say anything about anything these days and get away with it, whether it is true or not.
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