General Electric says it has been told by the U.S. Securities and Exchange Commission it might face civil action for possible infringement of securities laws in connection to accounting practices in some of the company's insurance properties.
The warning, known as a "Wells Notice," gives companies the opportunity to explain before a formal decision is made. General Electric said the issues the agency could bring about may involve the company's run-off insurance business - a portfolio of 300,000 long-term care insurance packages that it maintains in its General Electric Co. Capital arm.
General Electric took a surprise accounting charge of more than $6 billion in 2017 and said it would need to allot $15 billion for its long-term care insurance compensations - one of the biggest payouts ever.
In 2018, the company shocked Wall Street when it revealed a $6.2 billion loss in its insurance portfolio. These policies, which safeguard against assisted living costs, were affected by an increase in health care prices and longer life expectancies.
Its share price fell late Tuesday after the company disclosed the Securities and Exchange Commission's civil action. The company's stock climbed around 1.6% then fell as much as 4.5% before paring some losses. It settled at $6.17.
The Massachusetts-based company said in an 8-K filing that a Wells Notice is "neither a formal allegation nor a finding of any wrongdoing," MarketWatch quoted a portion of the statement as saying. It said it is allowed the opportunity to lay down its outlook and address the matters before any decision is made about enforcement.
According to a company representative, General Electric has fully cooperated with the Securities and Exchange Commission's inquiry in connection to "past reserve practices at our run-off insurance subsidiary, as we have disclosed since 2018," adding that General Electric Co. "strongly disagrees with the recommendation of the Securities and Exchange Commission."
