General Electric (GE) has agreed to pay $362.5 million in cash to resolve a long-standing shareholder lawsuit accusing the company of concealing risks within its power business. The settlement, filed in federal court in Manhattan on Monday night, addresses allegations of misleading disclosures related to GE’s GE Power unit and its reliance on financial practices that ultimately impacted shareholder value.
The proposed settlement, which is subject to approval by U.S. District Judge Jesse Furman, comes after years of litigation that began in 2017. In September 2023, Judge Furman had ruled that the case could proceed, despite GE’s efforts to dismiss the allegations, noting that a trial would be “expensive and risky” for both parties involved.
The lawsuit, led by two pension funds—the Cleveland Bakers and Teamsters Pension Fund and Sweden’s Sjunde AP-Fonden—focused on GE’s use of factoring, a financial practice where future revenue is sold for immediate cash, to boost the earnings of its GE Power division. The plaintiffs alleged that GE’s heavy reliance on factoring to meet short-term revenue targets sacrificed the long-term financial health of the company, and that the company misled investors about the true risks involved.
According to the shareholders, GE did not have enough contracts to justify the scale of factoring and failed to disclose the growing exposure associated with these practices. The suit claims that when GE’s financial challenges were eventually revealed, investors were blindsided, and the company’s stock price suffered significant losses.
The lawsuit also accused GE and its former Chief Financial Officer, Jeffrey Bornstein, of making misleading statements between February 2016 and January 2018. Both GE and Bornstein have denied any wrongdoing but agreed to the settlement in order to resolve the legal dispute.
In addition to the financial settlement, the plaintiffs’ legal team may seek up to 25% of the total settlement fund in legal fees. It is also noteworthy that in January 2021, Judge Furman had previously dismissed other fraud claims related to GE’s insurance portfolio, as well as claims against former CEO Jeffrey Immelt.
This settlement marks a significant chapter in GE’s ongoing efforts to resolve various legal and regulatory challenges. In recent years, the company has been restructuring its business, spinning off GE Healthcare in January 2023 and preparing to spin off its renewable energy and power business, GE Vernova, in April 2024.
The settlement funds were already set aside by GE in the third quarter of 2023, as the company continues to manage its evolving portfolio and address outstanding legal issues.
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