[camjohnson26]

Here’s a quick blog post that points out a few problems with the report.

https://brontecapital.blogspot.com/2019/08/the-flat-out-sill...

It looks like Markopolis claimed GE’s margins were too good to be true, even though they’re below the industry average.

Also he compares this section of the business with another company that GE spun off, seemingly not knowing that they were originally linked.

Doesn’t seem like a very credible report if these 2 things are true.

[elliekelly]

I'm torn because I've definitely heard plenty of rumblings about GE Capital over the past decade so the accusations certainly seem plausible. I feel like I even opened the report expecting to confirm the rumors I had heard. But I've only made it to page 5 and so far it's a lot of hot air without any substance. And the tone of the writing is needlessly flippant. It's difficult for me to take the report seriously.

For example, this sentence raises red flags to me:

> I won’t reveal every technique we used because every wannabe accounting fraudster out there is going to be reading this section closely looking at it as a “how not to get caught” primer. There’s no point in making them harder to catch than they already are.

We're just supposed to take him at his word in order to protect ourselves from "wannabe accounting fraudsters" who might try to repeat what GE has done? That doesn't make sense to me. Revealing GE's supposed tricks would allow everyone else in the industry to better monitor for them.

[busyant]

> I'm torn because I've definitely heard plenty of rumblings about GE Capital over the past decade so the accusations certainly seem plausible.

Back in the 1990s and maybe early 2000s, GE would 'beat' analyst profit estimates every quarter by 'a penny' per share (occasionally by a few pennies). This went on for _many_ years.

I don't have any special insight, but this always struck me as _fishy_. You have a stable of presumably competent analysts prognosticating on your next quarter's revenue and profit and you consistently beat their average estimate _by a tiny bit._ You would think that you would come in _under_ the estimate every-so-often, but that was incredibly rare and the consistency always had a whiff of impropriety.

It wasn't just GE that did this. Many Fortune-500 companies had similar behavior, so perhaps it has an innocuous explanation, but I always wondered how it was possible to consistently beat estimates like this.

[jerf]

There's more degrees of freedom in accounting and accounting-related matters that non-accountants tend to realize. An easy trick to explain is a big deal of some kind that is closing near the end of the quarter. If your customer doesn't care, you may be able to choose whether you close that deal this quarter, because you need the revenue this quarter, or if you want to close it next quarter because you've got this quarter's "beat" covered, and there's no great advantage to beating by just that bit more.

Obviously in this specific case, it's only a quarter's worth of flexibility; I mean this as an example, not a manual on the practice.

There's a lot of ways of borrowing against the future to show revenue now. It is suspicious, but it may not necessarily be suspicious in the "fraud" sense of they aren't making the money they claim to be making, but rather, are they eating their seed corn to get this quarter's beat? Did they pull revenue forward they "shouldn't" have? (Sometimes it seems like it's better to beat expectations by a little for several quarters, then have one big disaster quarter, than to miss by a little for several quarters.) Did they profit this quarter by failing to invest in growth that they're going to need later?

So, I wouldn't say it's an innocuous explanation exactly, but perhaps rather, there's a range of explanation that range from mostly innocuous gimmicks to the outright fraud, and it's hard to tell from the summary sheets which one you're looking at.

[rz2k]

I agree that it's not a credible statement. I do not think that their primary interest is the public good, even if the public good is ultimately a beneficiary of their possible discovery of fraud and shorting of GE.

Releasing the statement is meant to fight the implications of the saying, "Markets can remain irrational a lot longer than you and I can remain solvent." In other words, they want the market to move faster toward the correction they believe GE should undergo. They are not disinterested, they need people to believe them.

In fact, this type of statement in retrospect has been the biggest sign that Enron was a fraud that should have been discovered earlier. Typically a fund that has a black box producing returns trades at a lower price than its yields alone would justify. You get punished for not showing your work. Enron on the other hand claimed that their black box deserved a premium.

GE could be a fraud, but when the messenger says not showing their work is a feature, there should be a presumption of shadiness.

[ineedasername]

I started smelling something odd when the site wanted my personal info in order to let me download the report.

In general though, I find the claims plausible, but what sort of access did he & his organization have as outsiders? It's not like they had full audit access. Access of publicly accessible documents doesn't seem like it would be enough.

[one2zero]

Yeah if GE was 7% of my portfolio I'd be running interference too. With a cost basis of est $ 9.99.

https://whalewisdom.com/filer/bronte-capital-management-pty-...

[DannyBee]

The report specifically and repeatedly talks about the genworth spinoff (in multiple sections) and how it was supposed to help in various ways but specifically didn't.

Given their stake, this seems like bronte capital trying to do damage control.

The report itself would be more persuasive (IMHO) if written less flippantly, but this is definitely not a sane criticism of it ...

If you remove the flippancy, there are some serious issues exposed by this report (the GAAP vs SAP accounting tricks GE keeps claiming won't matter but will, double counting BHGE, etc)

[miohtama]

Short selling - the bug bounty hunting for the stock markets. Also no smoke without fire?

If their accusations are correct they already made a hefty profit with shorting the stock.

If their accusations do not hold water SEC will fine them for the market manipulation - would be quite hard to dispute it in this point.

Why would anybody take a risk of getting SEC coming after them?

But then it gets quite murky if some of the claims are true and some untrue.

[jjeaff]

Not just the SEC. GE could sue them into oblivion as well.