General Electric is fighting back after prominent whistleblower Harry Markopolos released a report Thursday accusing the company of being a "bigger fraud than Enron."
"This company is underwater financially and they have been hiding it from the public," Markopolos told Cheddar.
The report was posted on a new website and details losses that GE ($GE) supposedly underreported. The 168-page document compiled by Markopolos and his colleagues says GE's accounting fraud totals $38 billion — roughly 40 percent of the conglomerate's market value.
"All they ever do is report their top line revenue and their bottom line profits. They never tell us what is in between," Markopolos said. "Why the darkness?"
In a statement, GE said that Markopolos' claims are "meritless" and that the company is "extremely disappointed that an individual with no direct knowledge of GE would choose to make such serious and unsubstantiated claims. GE operates at the highest level of integrity and stands behind its financial reporting."
Markopolos also said the company needs an $18.5 billion infusion of cash to their reserves to make up for underfunded insurance care plans. "We're providing transparency for the investing public and to GE pensioners," he said.
GE said its reserves are "well-supported" for its portfolio and that the company conducts "rigorous reserve adequacy testing" annually.
Harry Markopolos is a well-known accounting expert and became a household name for exposing Bernie Madoff's multibillion-dollar ponzi scheme in the mid 2000s. The GE probe is his ninth investigation into companies committing fraud, according to his website.
“The report contains numerous novel interpretations and downright mistakes about the actual accounting requirements, making his conclusions about GE’s reporting questionable at best,” Leslie Seidman, GE’s director and chair of its audit committee, said in a statement.
GE's stock was down roughly 10 percent midday Thursday. Markopolos also told the Wall Street Journal that he and his team are working with an undisclosed hedge fund that is betting on GE's stock to fall.
"Mr. Markopolos openly acknowledges that he is compensated by unnamed hedge funds. Such funds are financially motivated to attempt to generate short selling in a company's stock to create unnecessary volatility," GE added in their statement.
The embattled conglomerate has faced multiple investigations in recent years by federal regulators over its accounting practices and insurance losses.
Markopolos told Cheddar that he did not disclose the report to GE before its release, but he did bring it to law enforcement agencies. "GE capital is a black box that spits out inexplicable gains and losses," the report read, adding that the fraud uncovered is "merely the tip of the iceberg."
GE’s chairman and CEO, H. Lawrence Culp Jr., said that 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.”
“This is market manipulation – pure and simple,” Culp added.