GE Investors Sue After Insurance Liabilities Draw SEC Attention

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By Jennifer Bennett

GE faces what may be the first shareholder securities fraud suit alleging it misled shareholders about its insurance liabilities and a resulting SEC investigation.

General Electric Co. didn’t properly adjust its insurance actuarial assumptions, causing the company to maintain inadequate insurance reserves and leading to massive falls in its stock price, according to a Feb. 16 complaint filed in the U.S. District Court for the Southern District of New York. GE stock dropped 2.92 percent when GE first revealed its long-term care insurance liabilities woes in July 2017, and continued to drop in response to subsequent disclosures, the complaint said.

The company Jan. 24 announced a Securities and Exchange Commission investigation into its accounting practices.

Investors collectively lost billions of dollars because of GE’s insurance liability problems, according to the complaint. The putative class seeks damages with interest, as well as court costs and attorneys’ fees, but has not yet been certified.

GE “will defend itself against these claims,” a company spokesperson told Bloomberg Law.

After the company discovered its higher insurance liability, it suspended and then decreased its dividend payments to shareholders—only the second time since the Great Depression that GE has done so, the complaint said. GE stock dropped from $26.69 per share before the company first announced its insurance liability woes to $16.18 per share after it announced the SEC investigation, representing well over $60 billion in market capital losses, according to the complaint.

The case is The Cleveland Bakers and Teamsters Pension Fund v. General Electric Co. , S.D.N.Y., No. 1:18-cv-01404, complaint filed 2/16/18 .

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