Friday, December 11, 2009

General Electric Bailing Out of NBC

GE in financial trouble is bailing out of NBC, when it should simply dissolve. GE just announced that it was selling its troubled asset NBC to Comcast.

NBC has been a headache for GE from the onset, including NBC Universal. The unit includes Universal Pictures movie studios, the NBC network, the Universal Studios chain of theme parks, and such cable channels as USA, Bravo and Syfy. The unit has suffered from the recession, with a drop in broadcast advertising, and some flops at the box office, such as "Land of the Lost."

The NBC network ranks fourth in ratings and is cutting down on scripted shows to save money. Its operating profit fell 27 percent in the first three quarters of 2009.

The financial crisis has been difficult for GE. In an effort to eliminate debt, GE has sold some businesses, is shopping others, and is chasing nearly $200 billion in stimulus money from worldwide governments in an effort to stabilize the company.

GE slashed its dividend by 68 percent and lost its top bond rating, its stock fell 90 percent below the peak it had in 2000, and GE is still attempting to work through its Hugh losses at its GE Capital lending unit, once the source of half of GE’s profits, in areas like commercial real estate and credit cards.

To make the Comcast deal work GE was required to buy out the 20 percent stake in NBC Universal that is held by French media company Vivendi SA. GE and Comcast are then expected to turn NBC Universal into a joint venture, with Comcast holding a 51 percent. GE would leave the partnership in a few years.

The Comcast deal is expected to bring in needed cash. GE anticipates it will be able to clear away about 17 Billion in debt, a net to GE of $5 to $7 billion from Comcast by forming the partnership, and GE would also be able to transfer to the Joint Venture about $8 to $10 billion in debt.

GE has been beset with litigation over the past decade, on August 4, 2009 the SEC fined General Electric $50 million for breaking accounting rules in two separate cases, misleading investors into believing GE would meet or beat earnings expectations.

GE has faced criminal action regarding its defense related operations. GE was convicted in 1990 of defrauding the U.S. Department of Defense, and again in 1992 on charges of corrupt practices in the sale of jet engines to Israel .

Defense Contracting Fraud
On July 23, 1992, GE pled guilty in federal court to civil and criminal charges of defrauding the Pentagon and agreed to pay $69 million to the U.S. government in fines, one of the largest defense contracting fines ever. The company said in a statement that it took responsibility for the actions of a former marketing employee who, along with an Israeli Air Force General, diverted Pentagon funds to their own bank accounts and to fund Israeli military programs not authorized by the United States. Under the settlement with the Justice Department over violations of the Foreign Corrupt Practices Act, GE paid $59.5 million in civil fraud claims and $9.5 million in criminal fines.

GE’s civil and criminal problems stemming from the Israeli military program are by no means isolated. GE is a repeat offender when it comes to Defense Department fraud. The company has repeatedly violated the False Claims Act — a measure originally proposed by Lincoln to protect federal coffers.

When the Project on Government Oversight surveyed defense contractors, it found that General Electric was responsible for 15 instances of fraudulent activity in just a four year period (1990-1994) — more than any other defense contractor.

On August 10, 1995 the U.S. Department of Justice announced (# 95-438) that GE would pay $7.1 million to settle a contract fraud suit initiated by Ian Johnson, an engineer at GE's Aircraft Engines plant in Evendale, Ohio in 1993. Johnson had alleged that GE "sold several thousand jet engines to the military that did not comply with military electrical bonding and electromagnetic interference testing requirements," according to DOJ. (Subsequently, the Air Force tested the engines and found them to be safe.) Johnson filed the suit on behalf of the United States under the qui tam provisions of the False Claims Act.

On January 10, 1997, the U.S. Department of Justice announced (# 97-012) that GE would pay $950,000 to settle allegations that it fraudulently misrepresented that it had conducted certain test procedures on circuit boards for hundreds of aircraft engine controls when in fact the tests were not conducted.

GE paid $5.87 million (along with Martin Marietta) to settle a qui tam suit associated with improper sales of radar systems to Egypt.

GE paid fines between 1990 and 1994 ranging from a $20,000 criminal fine to a $24.6 million civil fine for a variety of defense contracting frauds, including: misrepresentation, money laundering, defective pricing (2 incidents), cost mischarging (3 incidents), false claims, product substitution, conspiracy/conversion of classified documents, procurement fraud and mail fraud.

On July 22, 1992, GE “(pled) guilty to diverting some $26.5 million from the U.S. foreign military aid program used to finance General Electric's sale of F-16 jet engines and support equipment to Israel." (United States v General Electric, Docket #90-CV-792, US DC SD OH, Cincinnati) See Defense Contracting:

Contractor Claims for Legal Costs Associated Stockholder Lawsuits, GAO/NSIAD-95-66

(July 1995)
GE was convicted on February 3, 1990 in U.S. District Court in Philadelphia of defrauding the government out of $10 million for a battlefield computer system. GE pled guilty on May 19, 1985 to charges of fraud and falsifying 108 claims on a missile contract. GE was convicted of defrauding the Air Force out of $800,000 on the Minuteman Missile Project. GE was convicted of bribing the Puerto Rico Water Resources Authority.

Violations of Securities Laws
On September 24, 2004, the SEC announced (# 2004-135) that it had settled charges against GE for failing to fully disclose in proxy statements issued between 1997-2002 all of the retirement benefits granted to former CEO Jack Welch.

Tax issues:
For examples of facility-specific GE tax-abatements up to 2001 see “GE Tax Abatement Ripoffs” published by Multinational Monitor.

Additionally if this weren’t enough to make your hair stand on end, GE also has a less than sterling labor record abroad. In 1988 the International Metalworkers' Federation held a convention of delegates from GE factories in 23 countries. Reports delivered at the gathering showed that the company was depressing wages and weakening unions just about everywhere. Some of the strongest anti union postures were taken by GE in Brazil and Colombia.

GE’s business model can be considered a global system of management by stress, with the company viewing stress and the fear of job loss as the magic formula for productivity and efficiency.

Retirees claim the company has used accounting gimmicks and other means to reduce their pensions.

According to Multinational Monitor magazine, the Occupational Safety and Health Administration (OSHA) cited GE for at least 858 violations of OSHA rules from 1990 through March 2001. From 1994 to 1999, OSHA cited GE for at least 98 “serious” violations. OSHA issues “serious” citations to companies for conditions posing “a substantial probability that death or serious physical harm could result.”

Employment Discrimination
A black worker at GE’s Burkville, Alabama plant filed a suit claiming that General Electric officials fostered a racially hostile environment. GE reached settlements with two ex-GE employees employed at the plant. The workers claimed they were subjected to Ku Klux Klan symbols, swastikas and a hangman’s noose at the plant.

In 1991 GE was assessed over $ 590,000 in association with a disability claim for its refusal to reasonably accommodate a machinist with a back injury. A jury awarded $1.2 million in damages, which the district court reduced to $300,000 in accordance with the statutory cap on ADA damages. The machinist was also awarded $141,110 in front pay and $150,837 in attorney’s fees, according to the ADA newsletter.

Environment and product safety
Persistent concerns about PCB Contamination of the Hudson River from two GE manufacturing plants in Hudson Falls and Fort Edward have caused EPA to study the issue on a continuous basis since the site was listed on the nation’s Superfund priority site list in the early 1980s. Finally, on December 6, 2000, after 16 years of studies, proposals and more studies, EPA announced a 5-year plan to dredge 2.65 million cubic yards of PCB-contaminated sediment along a 40-mile stretch of the river. The cost of EPA’s proposal to GE: $460 million. The high cost of the cleanup has led company officials to mount one of the biggest public relations campaigns ever waged around a toxic waste site. Although EPA and the company signed a Record of Decision agreement in 2002 and numerous cleanup agreements after that, remediation is scheduled to begin during 2009. (For more information also see Clean Up GE)

Until reaching an agreement with EPA, GE denied the problem, sometimes with outright distortions of the truth. At an April 22, 1998 shareholder meeting, GE CEO Jack Welch claimed: “PCBs do not pose adverse health risks.” Testifying in Albany on July 9, 1998, EPA Administrator Carol Browner stated: “GE tells us this contamination is not a problem. GE would have people of the Hudson River believe, and I quote: ‘living in a PCB-laden area is not dangerous.’ But the science tells us the opposite is true ... And concern about PCBs goes beyond cancer ... The science has spoken: PCBs are a serious threat...”

PCBs from GE have also contaminated the Housatonic River in Connecticut, as well as in or near the Coosa River Basin in Georgia (traced to GE's Rome, Georgia plant).

On May 30, 2003 US EPA announced that GE would pay a $ 94,380 penalty to settle a TSCA enforcement action related to the improper storage of PCBs at its Pittsfield, MA facility.

Other Pollution Issues
On March 26, 1998, General Electric agreed to pay a $92,000 fine for previous violations of environmental reporting requirements for toxic releases at its silicone manufacturing plant in Waterford, New York, according to EPA’s regional office. In addition, GE agreed to spend about $112,000 to upgrade local emergency response capabilities in surrounding communities. Between 1991 and 1996, EPA cited GE for 23 violations when toxic releases were un- or underreported. Chemicals involved include dimethyl sulfate, chlorine, 1, 1, 1, -trichloroethane, ammonia, and toluene.

On March 13, 1992, the Nuclear Regulatory Commission (NRC) issued a $20,000 fine against General Electric for violations of regulations at the fuel fabrication plant in Wilmington, North Carolina. On May 29, 1991, GE personnel accidentally moved about 320 pounds of uranium to a waste treatment tank. The danger of the mistake was that the size and shape of the waste container caused unsafe concentrations of uranium, which could have led to a nuclear accident. The NRC dispatched a special incident investigation team the same day and an inspection began two days later. The NRC found that the mistake was the result of lax safety controls.

According to documents obtained by Public Citizen under the Freedom of Information Act, GE-designed nuclear reactors around the world have a design flaw that make it virtually certain (90 percent) that in the event of a meltdown, radiation would be released directly into the environment and into surrounding communities, leaving the public without any protection. The NRC acknowledges that the reactor containment structure in GE-built nuclear power plants does not work, but they licensed the reactors anyway. (Also, a dozen or more GE-designed boiling water reactors in the United States and abroad have evidence of cracking in the reactor core shroud — a metal cylinder surrounding the reactor’s radioactive fuel rods.)

On October 18, 2004, the California Department of Pesticide Registration announced that it would seek $202,959 in penalties for violations by GE's Betz Water business of the State of California’s pesticide registration requirements. The matter was ultimately settled in 2005 for $120,916, GE later explained in a letter to the Project on Government Oversight.

In August, 1996 the Florida Department of Environmental Protection informed Greenwich Air Services that it was seeking penalties of $278,555 for violations of the state's hazardous waste law at its Miami facility (the facility was subsequently acquired as a portion of GE's purchase of Greenwich which was consummated in September 1997). According to GE (10-K filed in March 1998), the matter was tentatively settled for $36,270 plus a pledge to perform a supplemental wastewater treatment project.

Human rights
In 1995, a Presidential Advisory Commission revealed details of GE’s human experiments with nuclear radiation. GE ran the Hanford Nuclear Reservation in Richland, Washington as part of the U.S. weapons program. Beginning in 1949, General Electric deliberately released radioactive material to see how far downwind it would travel. One cloud drifted 400 miles, all the way down to the California-Oregon border, carrying perhaps thousands of times more radiation than that emitted at Three Mile Island.

In 1986, Representative Edward Markey, D-Massachusetts, held hearings in which it was disclosed that the United States and General Electric had conducted experiments on hundreds of United States citizens who became “nuclear calibration devices for experimenters run amok.” According to Markey: “Too many of these experiments used human subjects that were captive audiences or populations ... considered ‘expendable’ ... the elderly, prisoners and hospital patients who might not have retained their full faculties for informed consent.” One of GE’s most gruesome experiments — disclosed in the Markey hearings — was performed on inmates at a prison in Walla Walla, Washington, near Hanford.

Starting in 1963, 64 prisoners had their scrotums and testes irradiated to determine the effects of radiation on human reproductive organs. Although the inmates were warned about the possibility of sterility and radiation burns, the forms said nothing about the risk of testicular cancer. Markey’s committee heard allegations that, at the time of the experiments, General Electric violated both civil and criminal laws.

Anti-competitive and consumer protection
GE was among four companies that ended up paying New York City over $4 million in 1982 to settle a lawsuit charging that wiring and cables in 754 subway cars were defective.

In 1992 GE agreed to pay $165,000 to settle a suit brought by 11 state attorneys general alleging the company deceptively advertised its light bulbs. According to the state AGs, the ads promised consumers the same amount of light for less energy, but in fact the light bulbs simply delivered less wattage.

GE Capital was ordered to pay $100 million for unfair debt collection practices as part of a 1999 class-action lawsuit settlement. The suit alleged that GE solicited agreements from bankrupt creditors to pay their credit card agreements without notifying bankruptcy courts of the agreements.

GE recalled 3.1 million dishwashers beginning in 1999, stating that a side switch could melt and ignite, presenting a fire hazard. In 2002, the CPSC announced that GE would pay a $1 million fine to settle allegations that the company knowingly failed to report the defects to the CPSC.

Unlawful Debt Collection Practices
On August 7, 1998, 50 States announced a $97 million settlement agreement with General Electric Credit Corporation (GECC) for unlawful debt collection practices from consumers who declared bankruptcy, in association with private label credit cards issued together with Montgomery Ward Credit Corporation. Under the settlement, GECC and Montgomery Ward Credit together paid an estimated $70 million to approximately 70,000 consumers nationwide from whom the companies collected invalid debts. In addition, the companies paid the states attorneys general $24.5 million. GECC also paid $3 million into a consumer education trust fund.

In April 2001, New York State AG Eliot Spitzer won a ruling in state court that, in connection with the dishwasher recall, GE falsely told consumers the problem could not be repaired, prodding customers with partial rebates to buy new GE dishwashers.

A November 1998 Time magazine profile of GE concluded that “there is no starker example of the phenomenon of corporate welfare and vanishing jobs than General Electric Co.”

On July 14, 1998, the U.S. Department of Justice announced (# 98-327) a settlement with GE over anti competitive practices involving restrictions GE had imposed in software licenses with more than 500 hospitals throughout the country. The restrictions prevented the hospitals from competing with GE to service medical equipment at other hospitals and at clinics.

With all this adverse activity, it would be in the public interest to dissolve GE and start another company, apparently the history of this company is one in which we the consumers should be very aware and very cautious!