I’m bad at math, much to the chagrin of my father, an award-winning accountant who rarely used a calculator or slide rule because he could process numbers faster in his head. I long blamed my algebraic impairment for my inability to analyze a balance sheet, but GE CEO Larry Culp makes clear that even the mathematically gifted don’t understand corporate financials.

In response to a damning report on GE’s financials by Harry Markopolos, the analyst famous for sounding the alarm on Bernie Madoff’s Ponzi scheme the hard-of-hearing SEC chose to ignore, Culp issued the following statement:

This is market manipulation pure and simple. Mr. Markopolos’s report contains false statements of fact, and these claims could have been corrected if he had checked them with GE before publishing his report.

Larry Culp

GE is under criminal investigation for financial irregularities, so Markopolis’s allegations aren’t totally out of left field. Yet Culp questioned Markopolos’s character, saying the analyst was motivated because he was short on GE’s stock, meaning he profited if the company’s share price declined. This is a flawed argument because Culp benefits if GE’s share price rises, so he’s as motivated to slather lipstick on GE’s financials as Markopolos is to call GE’s numbers butt ugly. Beauty is in the eye of the earnings report holder.

I won’t take sides here because I’m certain Markopolis and GE’s auditors have equally sound arguments for their accounting positions. And therein lies the problem.

Jack “Smooth Operator” Welch

Corporate accounting allows considerable latitude for managements to make judgments and estimates based on their opinions rather than indisputable facts. I recall reading that Jack Welch, GE’s former famed CEO, always managed to beat analysts’ estimates because the company “smoothed out” its earnings by reporting gains and losses at advantageous times. “Smoothing out” might less charitably be called manipulation, much like “payment for order flow,” the Wall Street euphemism for market makers paying brokerage firms for stock trades, is known in other industries as kickbacks.

What’s noteworthy is Culp chastising Markopolos for misunderstanding GE’s financials. Markopolos seems like an odd duck, but he’s shown that his quacks are worthy of attention. More importantly, he clearly has a gift for numbers. If Markopolos can’t readily understand GE’s financials correctly, how are run-of-the-mill investors expected to make sense of them?

I once represented a savvy accountant who founded an independent stock research firm. What set the firm apart was its refusal to speak with the managements of the companies it covered. My client maintained that a company’s financials should speak for themselves, and if they were opaque or confusing, that in itself was a warning sign. The warnings my client’s firm issued about many of the companies it covered proved correct.

Markopolos’s View of GE’s Financials

My client’s firm never took off because most investors prefer to believe financials certified by auditors wearing the rose-colored glasses issued by the managements that pay their salaries or bills. Markopolis believes GE’s reserves for its troubled long-term-care business are too low and GE’s management insists there’s nothing to worry about. GE’s stock took a pounding after Markopolis issued his report but rebounded after Culp assured investors the company’s financials are as kosher as a Hebrew National salami.

Leslie Seidman

The head of GE’s audit committee is independent director Leslie Seidman, who wouldn’t be my first pick if I was a CEO looking to cook the books. Seidman’s credentials include serving as a governor and chair of the audit committee of the Financial Industry Regulatory Authority (FINRA), a founding director of the Center for Excellence in Financial Reporting, and an advisor to idaciti, which boasts a platform that allows investors “to gain a broader, deeper view of public companies and their financial data disclosures.” If Seidman’s oversight can’t be trusted, then the integrity of all corporate accounting is questionable.

Time will tell whether Markopolis is right about GE’s reserves and other issues. Even if he’s right, he’s no hero.

Markopolis told the Wall Street Journal that he gave a hedge fund his research before publication and that he will receive a portion of the firm’s trading profits. He also plans to share his findings with regulators, hoping to receive a cash award for sounding the firm alarm about GE.

Arsonists shouldn’t be allowed to profit from publicly torching a company’s financials and then be rewarded for alerting regulators the reserve sprinkler system was faulty.  As for Markopolis’s claim that GE is “a bigger fraud than Enron,” that’s best left to a judge and jury to decide.  


I know very little about Abigail Johnson, Fidelity Investments Chairman and CEO.  And unless you are among the select few to have professional or personal dealings with her, neither do you. That’s why I admire the woman so much.

Johnson has successfully maintained an amazingly low profile, despite being one of the most powerful people in U.S. finance. Fidelity’s PR people could easily land Johnson on the cover of every major business publication, and Vogue and Vanity Fair no doubt would love to feature her in a fashion spread.

Johnson impressively has never let the media define her or drag her into discussions about the challenges of being a female leader in a male dominated industry. She lets Sallie Krawcheck grab the limelight when it comes to gender politics in the financial services business and gimmicky investing issues like buying lattes. In the rare interviews that Johnson has given, she’s focused on weightier matters like whether a no-fee fund is really free, the importance of being faster than perfect, the future of Bitcoin, and the challenges facing a company with more than $2.5 trillion in assets under administration.

Johnson leads by example, which explains why Fidelity is so aggressive protecting the company’s brand and its positioning alongside news stories. The Wall Street Journal last week reported that Fidelity has an extensive set of blacklist keywords that prevent the company’s online ads appearing alongside political or controversial content. 

“Political stories are, regardless of party affiliation, not relevant to our brand,” Fidelity said in a statement issued to the Journal.

Above the Political Fray

Amen. As a decades-long Fidelity client, I’m grateful for the company’s political agnosticism.  I look to Fidelity for its money management prowess and its investment insights, not for counsel on morals, how I should vote, or how I should behave.

What Fidelity does, it does very well. The company’s customer service and support are extraordinary. I’m still in awe that I called the company at 2 a.m. EST on Christmas and spoke to someone quite knowledgeable about Keough account regulations. Ditto for the guy on the bond desk who spent 45 minutes giving me a primer on bond prices and yields that I finally understood. Unlike Vanguard, Fidelity has a robust and reliable website even when there is market turmoil.

Without exception, I’ve always experienced a certain excellence with the dozens of Fidelity employees I’ve encountered over the years. The standard clearly emanates from the top and reaffirms my belief that the best CEOs are those that don’t allow their companies to be known and defined solely by themselves.


I feel alone in my outrage about the frequency of security breaches and the lack of consequences for CEOs overseeing companies experiencing them. But just in case there are a few other like-minded individuals out there, here’s the latest on the Capital One data theft.

Protects the Head, not Data

The Wall Street Journal reported last week that Capital One employees raised concerns about high turnover in the company’s cybersecurity unit and a failure to install hack prevention software the company had purchased. How bad was the turnover? About a third of the company’s cybersecurity employees left in 2018.

I’m in the Sequel

No doubt for greener pastures. According to CyberSeek, there were 301,873 cybersecurity job openings in the private and public sectors during the 12-month period between April 2017 and March 2018. This included 13,610 openings in the public sector. The entire employed cybersecurity workforce in this period was 768,096.

Capital One’s breach was caused by a hole in its data storage wall. Seems to me that one must have a hole in their head not to appreciate America is undergoing a very serious cybersecurity crisis. Our privacy data is ripe for the taking.

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