
G.E. Is Accused of $38B Fraud - airstrike
https://www.nytimes.com/2019/08/16/business/dealbook/ge-fraud.html
======
dang
[https://news.ycombinator.com/item?id=20705449](https://news.ycombinator.com/item?id=20705449)

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kyrra
One point that WSJ that NYTimes calls out too is that Markopolos is working
with a hedge fund in releasing this report (that I believe is shorting GE
stock). He's doing this so he can get paid up-front and not have to wait for
potential whistle-blower payout (which takes years). While this doesn't mean
his accusations are fake, but it's important to take these into account when
evaluating the claims.

[https://seekingalpha.com/article/4286597-markopolos-short-
re...](https://seekingalpha.com/article/4286597-markopolos-short-report-ge-
full-inaccuracies)

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panarky
Just because Markopolos will profit from his work doesn't mean his work is
bogus. In fact, if his work proves to be bogus, he most likely won't profit,
and his reputation will be damaged forever.

When GE people go on CNBC and make all kinds of carefully lawyered statements
that sound like denials but aren't actually categorical denials, they're also
getting paid.

The GE people get paid whether or not their statements hold up over time.
Given that, I'd put more weight on Markopolos because he actually has skin in
the game.

~~~
Traster
The hedge fund shorting GE will profit from the value of GE dropping due to
the bad news, it will profit from the value of GE dropping if there's an
investigation, and it will profit if the accusations turn out to be true.

There's no reason to think Markopolos won't profit if the accusations are
bogus, because he profits from the market reaction, not from the actual merits
of the accusations. In fact, his experience in the past tells him that even if
his accusations are true, they're unlikely to result in successful
investigations, and if his accusations are untrue, he's unlikely to face
consequences for it.

Also, whilst the people who go on CNBC to defend GE are paid to go on, they're
paid a fixed salary, they generally aren't particularly incentivized to boost
the stock price.

~~~
Excel_Wizard
>There's no reason to think Markopolos won't profit if the accusations are
bogus, because he profits from the market reaction, not from the actual merits
of the accusations.

The strength of the market reaction is contingent upon the strength of his
claims.

~~~
rando444
I'd like to recommend the book:

 _The Myth of the Rational Market_ by Justin Fox

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_rpd
> stems from understated liabilities in its insurance business,
> misrepresentation of its cash situation, and improper accounting for its
> acquisition of a stake in the oil field services provider Baker Hughes.

So it stems from a dispute between the opinions of "fraud hunter" Harry
Markopolos and the professionals employed by GE.

This seems to be a "Everything Everywhere Is Securities Fraud" situation.

[https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...](https://www.bloomberg.com/opinion/articles/2019-06-26/everything-
everywhere-is-securities-fraud)

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rdtwo
During the last financial crisis GE nearly imploded because GE financial was a
hotbed of fraud , poor accounting and risk management. It’s not inconceivable
that the same practices came back during the last boom years and and are only
coming up now because someone looked. The thing is it might be a good buy
because it probably won’t blow up nearly as fast as people think

~~~
Traster
Anyone paying attention to GE will know that it has not had boom years since
the recession.

~~~
rdtwo
The stock did triple from its bottom before crashing down in the last year or
so. Fundamentally I’d agree with you though

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lawrenceyan
If you think G.E. is bad, I encourage you to take a deeper look at Ford and
gasp in shock and awe. The 2008 financial crisis didn’t treat either of these
two companies well, but I’d much rather deal with G.E.’s finances than have to
take on the mess that Ford is.

Ford really should have declared bankruptcy like General Motors did then in
the preceding crisis, and it was only through a miracle of financial
engineering that they somehow managed to avoid it. To this day, you can still
see the incredible burden it carries on the company.

~~~
Maakuth
Not sure if you intentionally mentioned both, but it's worth noting that G.E.
is General Electric, not General Motors.

~~~
lawrenceyan
Yes, that was intentional. General Motors, the counter part to Ford as a car
company, declared bankruptcy in the wake of the 2008 financial crisis. The
financial practices that led to General Motors having to declare bankruptcy
were largely the same at Ford.

Ford didn’t go bankrupt then, but they basically had to figuratively sell
their soul in order to avoid doing so.

~~~
AmVess
Ford got rid of Volvo, Aston Martin, Jaguar, and Land Rover. All of these
brands have been doing poorly since Ford sold them.

Ford's relentless pursuit of cost cutting led them to keep many vehicles for
far too long. Their former bread-and-butter model, the Ford Explorer, went 9
years in between platform changes. The ford Flex has been on the same platform
for 11 years. The Ford Focus went 8 years without a change of platform.

Further, their cost-cutting initiatives have earned many of their vehicles
poor reliability marks to such an extent that Ford Focus sales are less than
half of what they were in just 4 short years.

I might add that Ford went upscale in price on a lot of its vehicles without
an attendant increase in upscale features. The Ford Explorer sells about half
of what it used to during its peak.

Selling off car companies was a good idea. However, poor products, poor
product planning, poor reliability, and a spineless vision of the future has
put them into a bad spot with no real light on the very distant horizon.

~~~
randomcarbloke
Those three companies did better every year post-Ford, with the exception of
AML's latest year.

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6thaccount2
Yea this is getting a lot of headlines.

The fact that they put up a gefraud.com and they call them "GEnron" is
interesting.

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newsbinator
> The company’s shares plummeted on the news, falling by 8 percent to a seven-
> month low. Mr. Culp [CEO of GE] responded by buying $2 million of G.E.
> stock.

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majestik
Title should be adjusted to end with “by activist short sellers”

~~~
snek
Well that is the point of activist short sellers; not too different from
security researchers having a monetary incentive with bug bounty programs.

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atlasunshrugged
Anyone have any insight into what he's doing as a business model? Basically
having a fund, investigating companies (as you would have to do anyways to vet
a potentially large investment) and then if you find malfeasance, corruption,
etc. shorting the stock and exposing it publicly. You could probably pair it
up with a management consultancy or something that could swoop in and charge a
fee to clear out the corruption and get things running back on track if you
wanted to go long on the stock too. I realize this may be somewhat like what
activist investors do but I'm thinking more focused on corruption fully rather
than just underperforming companies. Something like what Bill Browder did in
Russia back in the day (and if you haven't read his book Red Notice, it's an
incredible read, has helped lead to Magnitsky Acts around the world, but I
won't spoil it)

~~~
tdhoot
The term for this is "activist short seller". It's pretty common. Citron
Research, Bonitas, and Spruce Point are some of the firms I've heard of that
follow this business model, but there are tonnes of them.

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martin1975
It'd be nice if unaccredited investors could invest in this undisclosed hedge
fund :).. I for one believe Markopolos.

~~~
dehrmann
If you have a margin account, you can always short GE, but if GE's claim is
right, the damage has been done.

Let's also start with which hedge fund it might be.

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whenanother
is this another pension scam a la toys r us and usps?

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purephase
Fuck. This is not good in either situation. If it's market manipulation, then
shorters will be out in force. If not, then an org the size of GE will be a
catalyst.

~~~
tru3_power
Can you explain why more shorters means share prices drop? Is it all
perception or am I missing something? Sorry n00b here.

~~~
onlyrealcuzzo
Share prices usually drop if there's a ton of short demand, because to short a
stock -- you literally borrow a stock and then sell it. The idea is, you'll
buy it back later (hopefully at a lower price) and return it to who you
borrowed it from (hopefully for a profit).

~~~
wyxuan
You have the definition of shorting right, but it doesn't mean that shorts
cause a stock to drop. Beyond meat has had a crazy amount of people shorting
it, but that hasn't stopped it's 800% rise

~~~
arcticbull
Short selling does directly cause the stock price to move down due to
increased selling pressure.

What you're seeing with BYND is not directly because of the act of short-
selling, but the knock-on consequences and market dynamics. In part that has
to do with the fact that BYND has very few of the total shares floated, all
available shares were shorted (around 50% of float), and what little organic
retail demand for their shares existed was enough to move the price
materially. Eventually the market cap crossed the threshold for inclusion in
the Russel 2000 index, forcing ETFs tracking the Russel to buy BYND shares
too. This all caused the short-sellers to get liquidated, forcing them to buy
at whatever price was available. This in turn liquidated more shorts. And so
on. That was a textbook short squeeze.

IMO the reason it didn't go all the way up to the moon is that brokerages were
charging 140% APR to short the shares, so we were seeing consistent turnover
in the short positions.

The answer to "Who would buy BYND shares for $250" is "the trader and/or index
fund who has no choice." It's worth more than 25% of the companies in the S&P
500, but only has $87M in revenues and 200 employees in a warehouse in LA with
a handful of pea patties.

