GE stock plunges on fraud allegations, but there are reasons to doubt whether GE is really the next Enron or Bernie Madoff. | Source: AP Photo / Richard Drew (i), Spencer Platt / Getty Images / AFP (ii). Image Edited by CCN.
By CCN Markets: Embattled industrial giant General Electric took another blow Thursday. GE stock is trading down more than 10% following news that famed fraud investigator Harry Markopolos has accused General Electric of committing fraud.
Madoff Whistleblower: GE Stock Is Overvalued by 50%
Markopolos stated that GE is a “bigger fraud than Enron” and added:
“My team has spent the past seven months analyzing GE’s accounting and we believe the $38 billion in fraud we’ve come across is merely the tip of the iceberg,”
Markopolos released a 170-page report targeting GE stock. In his report, he accused the company of having nearly a $20 billion shortfall in its insurance business. He also alleges that GE is dramatically overstating the value of its oil and gas business.
Combined, Markopolos says General Electric is worth nearly $40 billion less than investors believe. As GE stock has a market cap of around $80 billion, this implies that GE stock is 50 percent overvalued.
Markopolos became famous for exposing Bernie Madoff’s gigantic Ponzi scheme. However, some analysts believe he may not have similar success this time.
He’s working with an undisclosed hedge fund to profit from GE’s decline and will receive a portion of any gains they make.