GE Reaches Settlement with Regulators Regarding Discontinued Business Unit

GE cooperated extensively in the inquiry that is part of an industry-wide investigation into practices by various companies involved in the marketing and sales of guaranteed investment contracts, and other financial instruments, to municipalities.
  • (1888PressRelease) December 28, 2011 - GE (NYSE: GE) announced today that its indirect subsidiary, GE Funding Capital Market Services, Inc. (“GEFCMS”), has reached a settlement with the U.S. Securities and Exchange Commission (SEC), the U.S. Internal Revenue Service (IRS), the Antitrust Division of the US Department of Justice (DOJ) and a group of state attorneys general to resolve their investigations into the conduct of certain former employees from 1999 to 2004 in a business unit GE discontinued in April 2010.

    GE is pleased to have resolved this matter. The investigation focused on the behavior of three employees who are no longer with the company. The settlement reflects GE’s commitment to act in the best interests of our shareholders by bringing this matter to a close on a mutually acceptable basis with the regulators. GE remains committed to the highest standards of integrity and compliance across all of its business lines. The employees’ behavior in this matter did not meet GE’s standards.

    GE cooperated extensively in the inquiry that is part of an industry-wide investigation into practices by various companies involved in the marketing and sales of guaranteed investment contracts, and other financial instruments, to municipalities.

    Under the terms of the settlements, GEFCMS will pay a total of $70.35 million as follows: $24.9 million to the SEC; $11.2 million to the IRS; $34.25 million to the group of state attorneys general. Of those funds, $54.9 million will be available for distribution to those municipalities and other tax-exempt issuers eligible to recover under the terms of the settlements.

    The settlement amount was fully provisioned in prior quarters and is not expected to have any material impact on GE’s earnings.

    The IRS Agreement

    Under the IRS agreement, it was agreed to issue the following statement:
    GE Funding Capital Market Services, Inc. (“GEFCMS”) announced today that it has agreed to a settlement with the Internal Revenue Service under which GEFCMS will pay $11.2 million for certain regulatory violations of the Internal Revenue Code committed in connection with GEFCMS’s role in providing or bidding on guaranteed investment contracts with state and local issuers of municipal bonds or with the beneficiaries of such bonds, such as school districts, universities, hospitals and charitable organizations.

    This settlement agreement with the Internal Revenue Service is entered into to resolve certain regulatory violations of the Internal Revenue Code resulting from GEFCMS’s improper practices in the bidding on certain guaranteed investment contracts in the municipal market.

    With respect to compliance by the affected issuers with the arbitrage requirements of Section 148 of the Internal Revenue Code, under the settlement agreement the investment contracts associated with a State or local bond entered into with GEFCMS or its affiliates during the period 1999 to 2006 are deemed to have been entered into on terms which represent the fair market value of such contracts. In addition, payments to issuers of any restitution or settlement fund payments related to such contracts need not be included as gross proceeds of the related bond issue for purposes of complying with the tax exempt bond rules.
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    About GE

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