Shares of GE are a spot to watch today after Harry Markopolos released a 175-page report alleging a massive fraud at GE Finance.
"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 says in the report, which he gave to regulators.
The problem is in long-term care insurance. This is an area that has hammered insurance companies in the US and globally. Many policies were underwritten to care for people as they aged but insurance companies badly underestimated the costs, which have spiraled as people live longer. Prudential, for instance, is reserving $113,455 in losses per policy. The report says GE is reserving only $79,000, which leaves at $9.5B shortfall.
In addition, they allege other types of accounting fraud.
"GE has been running a decades long accounting fraud by only providing top line revenue and bottom line profits for its business units and getting away with leaving out cost of goods sold, SG&A, R&D and corporate overhead allocations," the report said.