Nelson Peltz’s Trian Management sold almost half of its stake in General Electric during the third quarter — just before the Securities and Exchange Commission’s investigation of the company heated up.
On September 30, the SEC staff issued a Wells notice to GE, letting the company know it was “considering recommending to the SEC that it bring a civil injunctive action against GE for possible violations of the securities laws,” the company disclosed on October 6.
By that time Trian was holding 32,183,233 shares, after dumping 45 percent of its stake during the quarter, according to its 13F filing with the SEC on Monday night.
Those sales came before the company received the Wells Notice, according to a statement from Trian.
“Trian sold a portion of its GE stake for portfolio management purposes, including to provide for new positions,” the hedge fund said in a statement it released on August 5. “After these sales, Trian will beneficially own approximately 32.1 million shares.”
Trian also sold shares in Procter & Gamble, Mondelez, nVent Electric, and Bank of New York Mellon during the quarter, according to its 13F filing. It has since opened new stakes in Invesco, Janus Henderson, and Comcast.
Trian first invested in GE in October of 2015, when the stock was trading around $28 per share — almost three times their price today.
Two years later, Trian was granted a board seat, and Trian founding partner and CIO Ed Garden became a director. He remains on the board, forcing Trian to disclose the sales before the quarter’s end.
“Trian is highly supportive of GE CEO Larry Culp and his team’s restructuring efforts and focus on creating long term value. Trian believes that GE will weather its current challenges due to the COVID-19 crisis and emerge a stronger company as global aviation begins to recover,” Trian’s statement read.
A Trian spokesperson declined to comment on the Wells Notice.
GE stock was trading under $10 Tuesday, down about 14 percent this year.
Last August, whistleblower Harry Markopolos released a 175-page report in which he claimed GE was committing accounting fraud for under reserving in its long-term healthcare business. Markopolos said he had also given the report to regulators.
Markopolos became famous for alerting the SEC to the Madoff Ponzi scheme, which the agency ignored. He has been a whistleblower to the government in other cases, notably the investigation of insurer AmTrust Financial, which settled with the SEC this summer over charges related to AmTrust’s accounting for losses from insurance claims.
“GE is one recession away from Chapter 11. Their balance sheet is in tatters,” Markopolos said on CNN at the time.
A year ago, Trian owned more than 64 million shares and began to sell shares earlier this year, so now its stake is half the size it was at the time of the Markopolos report.
When Markopolos released his report, GE shareholder Stanley Druckenmiller stuck up for the company and said he was adding to his position at the time.
But Druckenmiller has dumped almost three-quarters of his stake this year, according to securities filings. At the end of the year, he owned 16,657,128 shares and 420,700 call options, according to a 13F filing. He now owns 4,375,778 shares. His Duquesne Family Office sold 45 percent of his shares during the second quarter but did not sell any more during the most recent quarter. (It still owned the call options.)
In its disclosure of the Wells Notice, GE said it “has been informed that the issues the SEC staff may recommend that the SEC pursue relate to the historical premium deficiency testing for GE Capital’s run-off insurance operations, as well as GE’s disclosures relating to such run-off insurance operations. The staff has not made a preliminary decision whether to recommend any action with respect to the other matters under investigation.”
In addition to the long-term health care business, the SEC has added an investigation of charges related to GE’s power business, the company said.
GE noted that it provided documents and was cooperating with the probe.
“The Wells notice is neither a formal allegation nor a finding of wrongdoing,” GE said, noting it disagreed with the allegations. “If the SEC were to authorize an action against GE, it could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and other relief within the Commission’s authority. “
