Former Panametrics owners sue GE after acquisition; GE denies wrongdoing
New York, NY—A federal lawsuit filed April 1 by the two former owners of Panametrics Inc. (Waltham, MA) is charging General Electric Corp. (GE, Fairfield, CT) with fraud, breach of contract, and deceptive practices in its acquisition of Panametrics last year. GE responded April 18 that the lawsuit is without merit.
New York, NY— A federal lawsuit filed April 1 by the two founders and former majority stockholders of Panametrics Inc. (Waltham, MA) is charging General Electric Corp. (GE, Fairfield, CT) with securities fraud, breach of contract, and deceptive business practices in its acquisition of Panametrics last year.
David Chleck and Dr. Edmund Carnevale, Panametrics' founders and former co-chairmen, are seeking at least $25 million in compensatory damages, plus punitive damages from GE.
GE Power Systems bought Panametrics last summer; added it to GE's Energy Management Services business; and renamed it GE Panametrics. A manufacturer of ultrasonic testing equipment and process control instrumentation, Panametrics was founded in 1960 and had more than 1,000 employees at the time it was acquired.
The lawsuit, filed in U.S. District Court's New York Southern District, alleges that GE regularly engages in a pattern and practice of inducing business owners to sell their companies to GE without disclosing that it has a policy of systematically resorting to post-closing tactics, such as using false statements, accounting manipulations and other techniques, including manipulation of accounts receivable, in order to avoid paying the agreed purchase price. The suit alleges that the failure to disclose this policy is a violation of the U.S. Security and Exchange Commission's (SEC) anti-fraud Rule 10b-5, under the Securities and Exchange Act of 1934.
The lawsuit explains thatples, and engaged in other manipulations to justify a large post-closing adjustment relating to items it had exhaustively examined and ac-cepted prior to the closing. In fact, the lawsuit says that accountants at Deloitte & Touche, who reviewed the transaction, reported that GE owes the shareholders money when the deal is calculated as set forth in the agreement.
The lawsuit further charges that GE also violated contractual agreements with respect to certain accounts receivable, the proceeds of which once collected were to be paid to Panametrics' shareholders. Instead, the lawsuit claims that GE collected the accounts receivable, but has refused to remit the proceeds to the shareholders as required by the contract.
'What makes this especially disturbing is that GE is a company that constantly touts its integrity and commitment to honesty in advertisements, on the Internet and with its employees and business partners,' saysmeetings and presentations at which GE executives boasted that `the closing price is never the final price,' and that it is standard practice at GE to manufacture ways to always get money back regardless of the contractual terms of the deal.'
Dennis Murphy, GE Power Systems' manager of global marketing communications, responded April 18 that, "Our position is that the sellers are trying to literally make a federal case out of what is a routine commercial dispute. The signed contract for this acquisition allows renegotiation of the purchase price after the closing is done. Absent a lawsuit, a third party usually conducts an audit, evaluates claims from the parties involved, and then decides how much each should receive from funds held in an escrow account. Now it's the federal court that will decide."
Murphy added that he couldn't comment on what GE is seeking to get back in its claim in the audit. "As for this lawsuit, we feel that it is totally without merit. The wording was very strong, and so we also totally reject any implication that there is any integrity flaw on our part, and we stand by the claim made in the audit," says Murphy.
Control Engineering Daily News Desk
Jim Montague, news editor