Accounting Fraud Watch: GE Bigger Than Enron?, Brixmor Bad, SEC Piles On Power Solutions Execs

A certain report about General Electric caused quite the uproar yesterday.

GE falls the most in 11 years after Madoff whistleblower calls it a ‘bigger fraud than Enron’ [CNBC]
Boy, did Harry Markopolos send shares of GE into a tizzy on Aug. 15:

Markopolos targeted the conglomerate in a new report, accusing it of issuing fraudulent financial statements to hide the extent of its problems.

A website has been set up to disseminate the report, www.GEfraud.com, where Markopolos calls it “a bigger fraud than Enron.” The financial investigator, who was probing GE for an unidentified hedge fund, writes that after more than a year of research he has discovered “an Enronesque business approach that has left GE on the verge of insolvency.”

“My team has spent the past 7 months analyzing GE’s accounting and we believe the $38 Billion in fraud we’ve come across is merely the tip of the iceberg,” Markopolos said in the 175-page report. Markopolos alleges that GE has a “long history” of accounting fraud, dating to as early as 1995, when it was run by Jack Welch.

Harry Markopolos

GE stock closed 11% lower in its biggest drop since April 2008, ending the day at $8.01 per share, but it has rebounded today after CEO Larry Culp bought nearly $2 million worth of the company’s stock.

That was a pretty ballsy statement Markopolos put out there. The Enron scandal destroyed the lives of both documents and people, and destroyed a Big 5 accounting firm. KPMG is already in the midst of destroying itself anyway because of all the stupid stuff it does, but it doesn’t help that it’s been GE’s auditor forever. But maybe not much longer.

Culp, of course, responded that Markopolos is full of shit:

“GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple,” Lawrence Culp, chairman and CEO of GE said in a statement. “Mr. Markopolos’s report contains false statements of fact and these claims could have been corrected if he had checked them with GE before publishing the report.”

Culp said the fact that Markopolos never talked to company officials before publishing the report “goes to show that he is not interested in accurate financial analysis, but solely in generating downward volatility in GE stock so that he and his undisclosed hedge fund partner can personally profit.”

What did KPMG say about Markopolos’ allegations?

KPMG declined to comment about its business relationship with GE because of “client confidentiality requirements.”

Of course it didn’t.

Michael Carroll

Former CEO and CFO of Brixmor Property charged in accounting fraud [Bloomberg]
Michael Carroll and Michael Pappagallo, the former CEO and CFO, respectively, of Brixmor Property Group Inc., were charged with manipulating income at the New York-based shopping-center owner.

Both quit in February 2016 following a discovery by the audit committee that employees were “smoothing” income to make quarterly results more consistent and within guidance issued by the company.

Michael Pappagallo

They manipulated same-store net operating income “to fraudulently convey to the investing public that Brixmor was accomplishing predictable, consistent and stable growth quarter after quarter,” prosecutors said in an indictment unsealed on Aug. 1.

Carroll and Pappagallo pleaded not guilty to charges of conspiracy, fraud, and making false statements to the SEC. They were each ordered released on $1 million bond secured by their homes.

SEC charges former manufacturing company executives with accounting fraud [Wall Street Journal]
Three former executives at Power Solutions International Inc.—CEO Gary Winemaster, vice president of sales Craig Davis, and general manager for industrial and heavy-duty products James Needham—were charged with violating internal control, anti-fraud, and various other provisions of U.S. securities law.

All three men played a role in falsely recording revenue for incomplete sales so that the company could meet analysts’ expectations, and then concealing information from the company’s auditors, the SEC said on July 19.

Power Solutions, which makes industrial and heavy-duty engines, materially misstated its financial results between the fourth quarter of 2014 and the fourth quarter of 2015 because of the alleged fraud.

Goals’ former executives accused of fraud [economia]
Two former executives at football pitch operator Goals Soccer Centres—CEO Keith Rogers and CFO Bill Gow—have been accused of creating “fictitious documents.”

Shares of the company have been suspended since March, when auditor BDO uncovered misdeclared tax liabilities worth £12 million.

BDO took over as auditor from KPMG in June 2018. KPMG has since been accused of negligence by Goals’ board, and told to prepare for a legal challenge.

Steinhoff’s ‘only way to survive’: slim down, sell assets [Reuters]
Steinhoff CEO Louis du Preez delivered a stark assessment of the company’s options at its first public investor presentation since the a $7 billion accounting fraud and share price crash took hold, saying on Aug. 13 that a radical transformation into a retail-focused investment holding company was its “only way to survive.”

Steinhoff has already sold a number of assets that do not align with that plan, and the company is looking to sell off others as well as cut jobs at its French retail chain Conforama, according to management.

Its remaining portfolio includes furniture and household goods firms such as Mattress Firm Inc in the U.S. and the Fantastic chain in Australia, general merchandise outlets including Britain’s Poundland, and a host of clothing stores.

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