GE Gets SEC Issues Behind It (GE)

General Electric Company (NYSE: GE) has reached a settlement with the SEC regarding four accounting matters in 2002 and 2003.  Yep, 2002 and 2003.  This has enough of a look-back that it is probably as relevant to shareholders today as gold to a dead man.  This concludes the SEC investigation of these accounting issue, and GE was able to settle these allegations without admitting or denying allegations of any wrongdoing. GE consented to the entry of a judgment that requires the company to pay a civil penalty of $50 million and to comply with the federal securities laws.

This pertains to the application of SFAS 133 to GE’s since-discontinued commercial paper hedging program and to certain swap derivatives where fees were paid or received at inception.  Also noted is a change in accounting for profits on spare parts in the commercial aviation engine business and certain year-end transactions in the Rail business.

GE said it has previously corrected for the effects of these matters in its financial statements in SEC filings made between May 2005 and February 2008 and that no further corrections are required.

GE also noted that it reviewed and produced approximately 2.9 million pages of e-mails and other documents to the SEC and incurred approximately $200 million in external legal and accounting expenses in this matter.

Part of the quote from the release is very standard for companies which settle to get an issue behind them: “We have concluded that it is in the best interests of GE and its shareholders to resolve this matter and put it behind us on the basis announced today, pursuant to which, consistent with standard SEC practice, we neither admit nor deny the SEC’s allegations. The errors at issue fell short of our standards, and we have implemented numerous remedial actions and internal control enhancements to prevent such errors from recurring, as previously described in our SEC filings, including measures to strengthen our controllership and technical accounting resources and capabilities.”

If the SEC is still settling issues from 2002 and 2003, it might be 2013 to 2015 before they get round to collecting the same sort of settlements from the myriad of companies that had accounting issues from the 2006 to 2009 periods.

GE of course wanted to get this issue behind it and make it known that the issue is behind it.  The $200 million in expenses is still a fairly large number, but the $50 million settlement is a figure small enough that it almost could have even been left out as an immaterial item to shareholders.

JON C. OGG
AUGUST 4, 2009