A whistleblower who warned regulators about Bernard Madoff�s Ponzi scheme is now accusing General Electric of misleading investors, sending the company�s stock on a downward spiral.

Investigator Harry Markopolos accused GE on Thursday of engaging in accounting fraud worth $38 billion, saying the company is hiding massive losses and heading for bankruptcy.

The issues he outlined lie primarily in GE�s troubled Capital unit, a financial services division often seen as a black hole in the company. The Capital unit holds commercial and personal loans, as well as insurance policies that include coverage of long-term care. In his report, Markopolos suggests that an accounting rule change for insurance liabilities and a significant lack of reserves to cover long-term care liabilities will push GE to take a $29 billion hit.

GE called Markopolos�s claims unsubstantiated and meritless, saying its reserves are well-supported and the company undergoes rigorous testing annually to ensure its reserves are adequate.

�GE operates at the highest level of integrity and stands behind its financial reporting,� the company said in a statement. �We remain focused on running our businesses every day, following the strategic path we have laid out.�

Markopolos disclosed that an unnamed hedge fund paid him for access to his GE report before it was released, revealing that he will be paid through a percentage of the trading profits. Asked about the potential conflict of interest, he told CNBC �I need to get paid. I have a family to support.�

Markopolos first became suspicious of GE�s accounting when he attended industry luncheons where portfolio managers and analysts said they didn�t believe GE�s numbers could be true because they met or beat earnings estimates every quarter, year after year.

He said the $15 billion hit GE took two years ago when it miscalculated the cost of caring for people who lived longer than expected was �a nasty market surprise and it�s about to get $29 billion worse.� He said GE should have taken action to boost its reserves years earlier to cover its unfunded long-term care liability, but instead waited until a new management team was in place.

GE is not alone in underestimating the reserves needed to cover long-term liabilities. Private companies and public pension funds alike have struggled to keep up with the growing cost of providing health care to an aging population that�s living longer than expected.

�You have to be really kind of smart about the way you write these policies to begin with,� said Joshua Aguilar, an equity analyst at Morningstar who follows GE. �Your hands are tied. You can�t go back and rewrite premiums.�

Morningstar has long believed that GE�s assumptions about how it would cover those liabilities were too aggressive, but that�s an industry-wide problem.

�Does it rise to the level of fraud? My answer to that is, �No,�� Aguilar said.

Markopolos also said GE misclassified its investment in Baker Hughes, an oil and gas business. He said that by misclassifying its ownership stake, GE hid a $9.1 billion loss last year. GE said it disclosed potential losses of $7.4 billion related to Baker Hughes in a recent federal filing and stood by how it classified the business.

Independent of Markopolos� report, GE Capital was already facing investigations, including an inquiry by the Securities and Exchange Commission about the previous $15 billion hit.

Markopolos is known for his role as the whistleblower who warned the SEC about Madoff�s Ponzi scheme, but those claims were initially ignored by regulators.

GE�s stock was down 11% in afternoon trading.

(AP)