The claims process for General Electric Co.'s (GE) GE Fair Fund was opened this week to distribute $200 million to investors. The fund, which was established by the Securities and Exchange Commission (SEC), will distribute civil penalties paid by GE to investors affected by the company’s failure to disclose material information about its power and insurance businesses. RCB Fund Services LLC, the fund's administrator, made the announcement on June 21.
- GE has opened its $200 million GE Fair Fund to compensate investors affected by the company’s failure to disclose material information.
- GE failed several years ago to disclose relevant details about profit growth in its power unit and unfavorable trends in its insurance business.
- Investors who purchased GE common stock between Oct. 16, 2015, and Jan. 16, 2018, are eligible for compensation if they meet specific requirements.
- GE’s share price has significantly underperformed the S&P 500 in recent years, despite its insurance business staging a turnaround in net earnings and revenue.
In December 2020, the SEC found that GE failed to disclose material information to investors about two if its key, reportable business segments. First, the SEC said GE failed to disclose relevant information about profit growth generated in its power business as well as $2.5 billion in cash collections. The agency also found the industrial giant inadequately informed investors about unfavorable trends in its embattled insurance business between the third quarter of 2015 and the first quarter of 2017 that had the potential to cause significant losses.
The conglomerate's insurance arm ultimately recorded a $9.5 billion pre-tax charge against the company's 2017 fourth-quarter earnings. This required GE to contribute $15 billion over the following seven years to meet its expected future insurance claims.
GE Fair Fund Specifics
Investors who purchased GE common stock on a U.S. exchange during the period from Oct. 16, 2015, and Jan. 16, 2018, are eligible for compensation from the $200 million GE Fair Fund, providing they meet other specific eligibility requirements outlined in its distribution plan. The compensation each investor receives depends on several factors, including: when their GE stock transactions took place, the number of shares that were bought and/or sold, and the total dollar value of eligible claims submitted by GE investors to the fund. Investors have until midnight on Oct. 19, 2022, to file their claim through the GE Fair Fund website: GEfairfund.com.
Share Price Underperforms, Earnings Rebound
GE stock plunged during the compensation window between Oct. 16, 2015, and Jan. 16, 2018, while the large-cap S&P 500 Index gained nearly 40% over the same period. Since then, GE shares have continued their dramatic slide to $67.43 as of just after noon Friday in daily trading.
From a profit perspective, GE has seen net earnings in its insurance business swing from a $663 million loss in 2019 to a $444 million profit in 2021. Moreover, the division’s total revenues increased to $3.1 billion in 2021 from $2.9 billion in 2020. GE also holds 11% more in reserves than it expects to need for policy claims, based on its annual premium deficiency test conducted in September last year.
The Bottom Line
The GE Fair Fund opened its claims process to distribute $200 million to investors. Established by the Securities and Exchange Commission (SEC), the fund offers compensation for investors affected by GE's failure to disclose material information relating to its power and insurance businesses. Investors are eligible for compensation if they purchased GE common stock on a U.S. exchange during the period between roughly mid-October 2015 and mid-January 2018. While GE's insurance business swung to a profit in 2021, those profits are dwarfed by billions of dollars in pre-tax charges and contributions for insurance claims in recent years.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.