Executives’ actions faulted in decline that cost shareholders more than $100 billion in value
Another shareholder lawsuit has been filed against General Electric over alleged securities fraud by the conglomerate that hurt investors.
GE’s stock is trading in the $15 range per share, a roughly 50 percent drop in the past year. This has erased six years of appreciation and more than $100 billion in value for its investors.
On Friday, attorneys for the Cleveland Bakers and Teamsters Pension Fund filed a securities class action lawsuit against GE in federal court in Manhattan on behalf of all persons or entities who acquired publicly traded GE securities from Feb. 26, 2013, to Jan. 24, 2018.
Defendants are: GE; its former and current CEOs, Jeffrey Immelt and John Flannery;and its former and current chief financial officers, Jeffrey Bornstein and Jamie Miller.
GE had little comment Monday, saying only, “The company will defend itself against these claims.”
Law firm Grant & Eisenhofer said in a news release that the lawsuit alleges the defendants concealed information and provided false and misleading statements about the performance of certain of its component businesses, including Schenectady-based GE Power. It said GE did not set aside sufficient loss reserves for its long-term liabilities, resulting in overstatements of its income, earnings and cash flow. When the truth became known, GE’s stock price declined considerably, it said.
The 31-page lawsuit focuses heavily on GE’s filings with the federal Securities and Exchange Commission, and on the devolution of GE Capital into a money pit whose legacy costs continue to strain the company’s finances.
But it also singles out GE’s Power and Oil & Gas segments, saying the company knew they were underperforming but did not tell investors this, or make adjustments in stated expectations for them.
The lawsuit lays out a mini-timeline for the prospects of GE Power offered by the executives:
- Dec. 14, 2016: Immelt said there was a “very strong pipeline not just in the Power business but across the portfolio” during the Investor Outlook Call.
- Jan. 20, 2017: Bornstein said “Our outlook for Power remains consistent with the expectations shared at the Outlook meeting.”
- March 8, 2017: Bornstein said “We feel really good about the Power business.”
- April 21, 2017: Bornstein said “Power had a very strong organic growth quarter” and the company was making no change to its investor guidance.
- Oct. 20, 2017: Under new CEO Flannery, the company announced GE Power was underperforming.
- Nov. 13, 2017: GE “stunned the market” and slashed its dividend; Flannery said Power’s problems were the single biggest factor leading to that decision.
In the wake of the dividend cut, the price of a share of GE stock plunged 7.2 percent to close at $19.02 on Nov. 13.
Notably, though, the share price had already declined 40 percent in the 12 months before Nov. 13 and it is down 21 percent since then.
The complaint seeks a jury trial and award of damages, interest, and the fees and costs associated with the legal action.
Grant & Eisenhofer said its class action case is related to a complaint filed in November by GE shareholder Jihad Hachem, making similar allegations: that GE officials’ actions caused shareholder value to plummet. That case was consolidated in December with a similar case brought by the Tampa Maritime Association-International Longshoremen’s Association Pension Plan, also in federal court in Manhattan.
Both cases named GE and various current and former executives as defendants.
GE in January revealed that the federal Securities and Exchange Commission, which regulates the stock markets, is looking into the company’s actions.
Meanwhile, GE shareholder Richard Gammel on Thursday filed a shareholder derivative complaint on behalf of General Electric against a long list of current and former GE executives and board members, and against GE itself.
This complaint was submitted in state Supreme Court in Manhattan, and makes essentially the same allegations as the other complaints: that GE’s operating segments underperformed the company’s projections, that the company did not report this, and that shareholder value sank as a result.
The 34-page complaint reads like a miniature history of GE and everything that went wrong with it in Gammel’s view.
It singles out GE Power as an example, saying: “Immelt spent grandly on energy and power deals just as those markets slipped into a decline that’s largely responsible for GE’s recent earnings struggles and cash shortfall.”
Gammel seeks a jury trial; award of restitution, damages, expenses; and an order that GE take necessary steps to reform and improve its corporate governance and internal procedures.