By Jonathan Stempel
NEW YORK (Reuters) - General Electric (NYSE:GE) failed to persuade a Manhattan federal judge to dismiss a long-running shareholder lawsuit accusing it of concealing risks at its power business, and the judge on Thursday urged both sides to settle.
U.S. District Judge Jesse Furman said shareholders could pursue much of their remaining six-year-old class action regarding Boston-based GE's reliance on factoring in connection with long-term service agreements at GE Power.
Shareholders led by two pension funds said the power unit grew increasingly reliant on factoring, or the sale of future revenue for cash, to boost reported revenue while sacrificing future cash flows.
They said the unit did not have enough contracts to factor, and GE "blindsided" investors with billions of dollars of unexpected exposure, causing its stock price to fall.
In a 47-page decision, Furman said the evidence showed a "clear awareness" among management that GE Power's use of factoring was contributing to a cash flow problem.
He also said a reasonable jury could find that GE intended to mislead, including in January 2017 when then-Chief Financial Officer Jeffrey Bornstein said factoring had "very little to do" with GE Power's "very good underlying performance."
The plaintiffs' case covered various GE representations and disclosures between February 2016 and January 2018.
Furman dismissed claims over disclosures in November 2017 and January 2018.
He also said the parties "should try to settle this case without the need for a trial that would be expensive and risky for both sides."
A lawyer for the plaintiffs declined to comment. Lawyers for GE and Bornstein did not immediately respond to requests for comment.
In January 2021, Furman dismissed separate fraud claims based on GE's alleged misrepresentations about its long-term care insurance portfolio, and dismissed former Chief Executive Jeffrey Immelt as a defendant.
The prior month, GE paid $200 million to settle U.S. Securities and Exchange Commission charges it misled investors about its insurance and power businesses.
GE spun off its healthcare business in January and is expected to spin off its renewable energy and power business in 2024. It would retain its aviation business.
The case is Sjunde AP Fonden et al v General Electric Co et al, U.S. District Court, Southern District of New York, No. 17-08457.