GE pays $40 million to settle shareholder lawsuit

Following allegations by shareholders that the company misled investors about its financial health during the 2008 financial crisis, General Electric has agreed to pay a $40 million settlement, according to a Reuters report.

The company was one of many hit hard by the stock market collapse and corresponding economic downturn. Its stock prices fell from about $25 per share in September 2008 to a low of about $5 per share in March 2009, amounting to an 80 percent drop in value. Also in March 2009, Standard & Poor's downgraded GE from its AAA credit rating.

Led by the State Universities Retirement System of Illinois, shareholders alleged in their suit that GE Chief Executive Jeffrey Immelt and Chief Financial Officer Keith Sherin were responsible for this tremendous loss. According to the Reuters article, they accused the company of "hiding billions of dollars of troubled subprime and other loans at its GE Capital unit." Shareholders also claimed that GE overstated the value of these assets and misled them about their ability to pay dividends.

Seth Martin, a GE spokesman, told Reuters that the dispute resolution was "in the best interests of shareowners as we avoid diverting significant resources to a lawsuit that we believe is without merit." Court records also showed that the plaintiffs reacted favorably to the settlement amount.

This is not the first time GE has been accused of misleading shareholders. In August 2009, the Securities and Exchange Commission (SEC) ruled that the company defrauded investors by pretending to sell more than 100 locomotives that were in fact idling on GE property. The company was fined $50 million.

Companies of all sizes must take care to protect themselves from litigation. Business owners who think they may find themselves in court should consult with a Phoenix small business attorney.

Categorised in: Litigation

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