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General Electric Co. shareholders have requested a Manhattan federal judge’s approval for a $362.5 million settlement to conclude a lengthy securities class action. The lawsuit, poised to go to trial, accused GE of hiding critical cash flow problems that led to a dramatic stock price drop.

Settlement Deemed "Outstanding Result"

The class representatives, Swedish pension fund Sjunde AP-Fonden (AP7) and the Cleveland Bakers and Teamsters Pension Fund, filed a motion Monday seeking preliminary approval of the deal. They described the settlement as an "outstanding result" achieved just weeks before trial in a seven-year case.

"While class representatives and plaintiffs' counsel believe the class's claims against defendants are meritorious ... they also recognize the significant risk that trial and appeals could preclude any recovery for the class," the motion stated.

The settlement covers thousands of investors who acquired GE common stock between Feb. 29, 2016, and Jan. 23, 2018. The settlement fund will also cover attorney fees and litigation costs, with class counsel planning to request no more than 25% of the fund (about $90.6 million) and up to $10 million in expenses.

General Electric $362.5M Settlement : Negotiation After Vigorous Litigation

The resolution was reached following three mediation sessions. Counsel for the plaintiffs emphasized the procedural fairness of the settlement, noting that extensive discovery and trial preparation informed their negotiations.

The recovery represents 8% to 36% of the class's estimated recoverable damages, which ranged from $1 billion to $4.5 billion according to a damages expert. The motion highlighted the inherent risks of taking any case to trial, particularly one of such complexity.

Allegations of Concealed Cash Flow Problems

The lawsuit, originally filed in November 2017, alleged GE misrepresented financial health by omitting details about its use of a factoring practice. Investors claimed the practice, which involved recording earnings from long-term service agreements far in advance of actual cash collection, was used to mask cash flow shortfalls. When these practices were revealed, GE’s stock price plummeted, harming investors.

The complaint—amended six times—alleged that GE concealed the extent of its liquidity issues by misleadingly attributing factoring to credit risk management rather than cash flow needs.

Litigation History and Representation

U.S. District Judge Jesse M. Furman dismissed parts of the investors’ fifth amended complaint in January 2021, including claims regarding misrepresented liabilities in GE’s long-term-care insurance portfolio. However, the plaintiffs secured class certification in April 2022.

The class is represented by Kessler Topaz Meltzer & Check LLP and Grant & Eisenhofer PA, while GE's legal team includes attorneys from Latham & Watkins LLP.

General Electric $362.5M Settlement : Conclusion

The settlement awaits the court's approval, offering substantial relief to investors while marking a significant resolution in the case. Both parties declined to comment.