Federal Judge Declines to Dismiss Shareholder Lawsuit Against General Electric (GE)
According to a report from Reuters, a federal judge in New York State will allow a shareholder lawsuit against General Electric (GE) to proceed. The multinational conglomerate is facing a lawsuit from shareholders that allege that the company’s leadership knowingly and improperly concealed certain financial risks from investors. Here, our Miami shareholder litigation attorney discusses the details and explains why the court declined to dismiss the lawsuit.
Background: Shareholders Sued General Electric for Alleged Concealment of Financial Risks
In 2017, a group of shareholders—including two large pension funds—filed a lawsuit against General Electric. A class action lawsuit, the dispute was focused around allegations that top executives at the company knowingly and improperly concealed financial risks related to GE Power. GE Power is a subsidiary company that is largely focused on renewable energy.
Federal Judge: GE Denied Dismissal of the Shareholder Lawsuit
GE sought the outright dismissal of the shareholder lawsuit by a federal court. However, United District Court Judge Jesse Furman dismissed the request. Judge Furman ruled that the shareholders can proceed with most of their class action lawsuit focused on GE Power. As part of the decision, Judge Furman highlighted evidence of management’s awareness of the cash flow issues resulting from GE Power’s use of “factoring.” Additionally, the judge emphasized that a reasonable jury might conclude that GE intentionally sought to deceive. He pointed specifically to a 2017 statement by the company’s now-departed Chief Financial Officer (CFO) that downplayed the risk of “factoring.”
Understanding the Dispute: An Overview of “Factoring”
Broadly speaking, “factoring” as an issue in this case refers to a financial/accounting practice whereby a business sells its accounts receivable to a third party at a discount. In the case of GE, the shareholders alleged that the company’s power unit was increasingly relying on factoring—that being the selling of future revenue for immediate cash—to artificially boost reported revenue. Shareholders argue that this method allowed GE to show increased cash flow in the short term. There is nothing wrong with factoring as a practice—as long as the accounting is done properly. However, the plaintiffs argue that GE improperly downplayed the risks.
A Genuine Dispute of Fact is a Matter for the Jury
To be clear, there has been no findings of misconduct on the part of GE. However, the federal court has determined that the plaintiffs (shareholders) have presented sufficient evidence to raise a genuine dispute of material fact. It is an issue for a jury. The jury will be empowered to assess the evidence and determine whether or not GE executives materially misled shareholders.
Contact Our South Florida Shareholder Litigation Lawyer Today
At Pike & Lustig, LLP, our Florida shareholder litigation attorneys have the professional experience that you can rely on. We are committed to helping clients find the best solution for their situation. Call our Miami office or our West Palm Beach office today to arrange your completely confidential, no obligation initial consultation. Our firm handles shareholder disputes throughout Florida.