Fairfield-based General Electric Co. reached a $50 million civil settlement with the U.S. Securities and Exchange Commission, a black eye for the company that publishes an annual corporate citizenship report assessing its efforts on corporate governance and citizenship.
The settlement followed an SEC investigation into how GE accounted for various accounting transactions. GE stated it spent another $200 million in cooperating with the SEC, including producing 2.9 million pages of emails, and the SEC indicated it took GE”™s cooperation into account in reaching a settlement agreement.
The SEC inquiry revolved around:
a commercial paper hedging program GE followed in 2002 and 2003, which the SEC estimated allowed GE to dodge a $200 million pre-tax charge to earnings; GE”™s reporting $370 million in locomotive sales in 2002 and 2003 that had yet to close; swap derivatives where fees were paid or received at inception; and an improper change to GE”™s accounting for sales of spare parts for aircraft engines that increased GE earnings by $585 million in 2002.
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GE initially reported $29 billion in total profits the two years in question, which marked the company”™s first two full years under CEO Jeff Immelt. In an open letter accompanying GE”™s most recent citizenship report, Immelt styled himself a leader committed to corporate social responsibility.
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“I have gained no solace in watching some (companies) focus on short-term gain with little regard to commitment or accountability,” Immelt stated. “In a world of short-term interests and rewards, GE understands that success is profoundly about the long term, for the business, for our investors and for our stakeholders. We are committed to staying true to our core values in these difficult times and believe that our responsible business practices are critical in helping us and our communities to weather the storm.”
In its lawsuit, the SEC indicated the transgressions were made against the advice of outside auditors and internal accounting staff in some cases, who were overruled by unspecified senior executives in the accounting and financial departments.
“GE bent the accounting rules beyond the breaking point,” said Robert Khuzami, director of the SEC”™s enforcement division, in a prepared statement. “Overly aggressive accounting can distort a company”™s true financial condition and mislead investors.”
The SEC had alleged that the first two transgressions were intentional, while the latter two were a matter of negligence. GE did not admit wrongdoing, but did not deny the charges and stated that the errors fell short of its accounting standards.
