As one of the 20 mostly widely held US stocks, you know the class action lawyers would salivate over finding a reason to sue General Electric for alleged stock fraud. Sure enough, several of the law firms have now sued over the company’s dividend cut last month and subsequent stock price tumble.
At least three class action specialist law firms have announced the filing of lawsuits against GE, claiming that company management deceived the investing public from the quarterly conference call on January 23rd until the announcement on February 27th that the dividend was being sharply reduced later this year.
The Law Offices Bernard M. Gross, P.C., summarized the allegations quite clearly in its announcement: “The complaint charges that GE and its Chief Executive Officer, Jeffrey Immelt, violated federal securities laws by making false and misleading statements regarding GE’s common stock dividend in 2009. Specifically, GE, since its inception in 1899, had paid a dividend on its common stock. As the credit crisis in the capital markets continued and intensified in 2009, the market began to seriously question whether GE would be able to maintain its common stock dividend. After stating on numerous occasions during the Class Period that GE’s common stock dividend was safe, defendants suddenly, on February 27, 2009, issued a press release stating that they were cutting GE’s common stock dividend by 68% commencing with the third quarter of 2009 and that GE would pay a dividend of only $0.10 per share, down from $0.341 per share. When defendants disclosed the truth to the market on February 27, 2009, GE’s common stock price plummeted.”
GE says it has been clear about the dividend status and announced February 6th that the dividend payout for the second half of this year was being evaluated by the board of directors, given the continuing deterioration of the US economy.
GE, by the way, saw its stock move up yesterday (Monday) as the company announced plans for its GE Capital subsidiary to offer hundreds of millions of dollars worth of new bonds (exact amount not yet determined) which will be guaranteed by the FDIC. The proceeds will be used to help fund the buyback of $1.5 billion in existing bonds that GE Capital announced last week.
RBR/TVBR observation: Anyone who thought GE’s dividend was solid wasn’t paying attention. We reported (and we certainly weren’t the only ones) that GE’s stock price fell January 23rd because of Wall Street fears that the dividend might be cut. That’s the beginning date of the period where the lawsuits claim investors were being deceived, leading up to the actual dividend cut on February 27th.
As for the GE Capital bond issuance, other GE units such as NBC Universal don’t benefit directly. However, the move does shore up the balance sheet of the parent company as well. So, it’s a pretty good deal to be tied to a division that’s able to issue federally-guaranteed bonds.