Suit claims GE misled investors in first quarter

BOSTON, Aug 1 (Reuters) - Two shareholders of General Electric Co (GE.N) have filed suit in federal court in Connecticut, accusing the conglomerate of failing to disclose deteriorating business conditions during the first quarter in what they said amounted to securities fraud.

The suit, filed on Wednesday in U.S. District Court in New Haven, contends that top officials at the second-largest U.S. company by market capitalization "lacked a reasonable basis" for upbeat comments about business conditions during the final weeks of a quarter that ended with an unexpected drop in profitability, bringing the sharpest drop in GE shares seen in two decades.

GE spokesman Russell Wilkerson said the company plans to "vigorously defend against this lawsuit."

The suit, filed by Thomas Coyne and Susan Coyne -- who bought 15,000 GE shares at prices ranging from $37.38 to $37.52 a few days before the first-quarter report -- seeks class action status for all investors who bought the shares from March 12 through April 10.

Since the April 11 profit report, GE shares have tumbled as low as $25.61. On Friday they were trading at $28.45, up 16 cents on the New York Stock Exchange.

The suit names GE Chief Executive Jeff Immelt and Chief Financial Officer Keith Sherin, in addition to the Fairfield, Connecticut-based company.

It contends that company officials in a March 13 Web briefing targeted to small investors failed to disclose that GE's financial units were not doing as well as previously forecast and that the demand for its consumer and industrial products had deteriorated.

"The defendants knew that the public statements issued or disseminated in the name of the company were materially false and misleading," the suit contends.

During the company's April 11 conference call with analysts, Immelt noted that the near-collapse of Bear Stearns rattled debt markets in the days after the March 13 briefing, and made it impossible for GE to complete some real estate deals by the quarter's end.

"The last two weeks of March were a different world, particularly in financial services," Immelt told investors on the conference call.

Since the surprising first-quarter result, GE has taken several steps to reorganize its business, including a plan to spin off to shareholders its appliances and lighting business and a streamlining of its six divisions into four.

GE shares are down about 23 percent so far this year, a deeper drop than the 14 percent slide of the Dow Jones industrial average .DJI and Standard & Poor's 500 index .SPX. (Reporting by Scott Malone, editing by Dave Zimmerman)