Many would say that the SEC’s recent $50m fine of GE for massaging earnings was a joke because it didn’t come close to either GE’s $200m in legal expenses or the $780m by which GE fudged their earnings.
Fortune, for example, lambasts Mary Schapiro’s SEC and says the fines amount to mere “peanuts.”
GE’s moves back in 2002 saved shareholders — and managers with chunks of stock — nearly $33 billion.
But applying even a third of the 2008 percentage drop to GE’s early 2003 market value — more in line with the average decline by S&P 500 companies that miss estimates — would mean the conglomerate still saved investors some 220 times the cost of the SEC’s fine.
Sure, the fine looks small in comparison to the fraud. But this misses the key issue.
The real reason why the SEC’s fine is a joke is because it fined the victim, GE’s shareholders. GE management settled early without having to admit guilt and paid for this privilege using shareholders’ funds.
GE shareholders who still own the stock have seen GE’s earnings ruse exposed and their share prices fall. They didn’t benefit from GE’s past earnings manipulation–if anything they suffered from it. While the SEC’s fines may lack bite, the real issue is that the SEC tends to bite the wrong people.
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