A monitor displays General Electric Co signage on the floor of the New York Stock Exchange in New York, US, on Friday, April 5, 2019. File photo: BLOOMBERG/MICHAEL NAGLE
A monitor displays General Electric Co signage on the floor of the New York Stock Exchange in New York, US, on Friday, April 5, 2019. File photo: BLOOMBERG/MICHAEL NAGLE

New York — General Electric (GE) fell the most in four months after a prominent whistle-blower working with a short-seller accused the company of masking financial problems. The company called the claims “meritless.”

Harry Markopolos, who had raised concerns over investment manager Bernie Madoff before his Ponzi scheme was exposed, said GE has understated liabilities in its insurance unit and hasn’t properly accounted for its investment in Baker Hughes.

In a report on Thursday, Markopolos said GE’s insurance unit will need to increase its reserves immediately by $18.5bn in cash with an additional noncash charge of $10.5bn when new accounting rules take effect in 2021. He also alleged that GE isn’t properly accounting for its interest in Baker Hughes, an oil-and-gas services company.

The allegations complicate GE CEO Larry Culp’s efforts to regain investor trust following years of strategic missteps and stock declines at the company. Since taking the helm in October, he has sought to reduce risk in the finance operations, fix the power-equipment unit and stanch the flow of bad news that erased more than $200bn from GE’s market value in the two-year period ending December 31.

The Boston-based manufacturer defended its accounting.

“GE operates at the highest level of integrity and stands behind its financial reporting,” the company said in an e-mail. “We remain focused on running our businesses every day, following the strategic path we have laid out.”

The shares dropped 8% to $8.31 at 9.44am in New York after sliding as much as 8.3% for the biggest intraday decline since April 8. GE had climbed 24% this year to the end of  Wednesday, following a 57% plunge in 2018.

Markopolos is working with a hedge fund he didn’t identify and stands to benefit from bets that GE’s stock will decline, according to the Wall Street Journal, which reported earlier on the accounting report. Markopolos and his colleagues also hope to collect a whistle-blower reward by reporting their findings to regulators, the Journal said.

With Katherine Chiglinsky and Jack Pitcher

Bloomberg