President Obama should remove General Electric CEO Jeffrey Immelt from the chief executive’s Economic Recovery Advisory Board after the firm agreed to pay a $50 million fine for what the SEC described as bending “the accounting rules beyond the breaking point,” according to the National Center for Public Policy Research’s Dr. Tom Borelli.
“It’s outrageous for President Obama to keep Immelt as an advisor when the SEC charged that GE engaged in a series of efforts to manipulate earnings to mislead investors,” Borelli said. “The pattern of corruption raised by the SEC is deeply concerning and during a time of economic crisis, the last thing America needs is a Bernie Madoff-type CEO giving advice to the president.”
Borelli’s group describes itself as “a free market communications and research foundation on Capitol Hill.” Only two percent of its funding comes from corporate sources, according to the foundation.
The SEC announced the fine and settlement with GE Tuesday. You can read the SEC statement here.
The firm agreed to the settlement and $50 million fine without admitting or denying any wrong-doing. According to the SEC, however, the firm engaged in illegal accounting practices on at least four occasions over a period of several years:
“GE met or exceeded final consensus analyst earnings per share (EPS) expectations every quarter from 1995 through filing of its 2004 annual report. However, on four separate occasions in 2002 and 2003, high-level GE accounting executives or other finance personnel approved accounting that was not in compliance with Generally Accepted Accounting Principles (GAAP). In one instance, the improper accounting allowed GE to avoid missing analysts’ final consensus EPS expectations.
“The four accounting violations were:
- Beginning in January 2003, an improper application of the accounting standards to GE’s commercial paper funding program to avoid unfavorable disclosures and an estimated approximately $200 million pre-tax charge to earnings.
- A 2003 failure to correct a misapplication of financial accounting standards to certain GE interest-rate swaps.
- In 2002 and 2003, reported end-of-year sales of locomotives that had not yet occurred in order to accelerate more than $370 million in revenue.
- In 2002, an improper change to GE’s accounting for sales of commercial aircraft engines’ spare parts that increased GE’s 2002 net earnings by $585 million.”
Immelt was GE’s CEO at all times when the accounting fraud took place.
“Gven the nature of the SEC charges, Obama should question the motivation and truthfulness of everything Immelt says, including the company’s support of cap-and-trade legislation,” Borelli said. “Immelt’s support of cap-and-trade has nothing to do with a concern for the planet, but everything to do with setting government mandates to purchase renewable energy products such as GE wind turbines.”
General Electric is the 21st largest government contractor, with awards totalling more than $1.5 billion thus far in 2009, according to USASpending.gov. The firm expects to secure substantial “green” government contracts under its Eco-magination initiative that covers a variety of energy saving and alternative energy projects.
