Shares in one of America's largest companies General Electric, fell sharply overnight after what turned out to be a fake press release, saying the company would repay billions of dollars in outstanding taxes.

The bogus release was the work of an activist group that wanted to draw attention to GE's use of tax avoidance measures to cut its tax bill, but the biggest victim of the hoax might not be the company, rather the news outlets that ran the fictitious story.

For the American public facing tough economic times it sounded too good to be true.

A press release issued by General Electric and forwarded on by the Associated Press news wire service detailed the company's apparent $3.2 billion gift to the US Federal Government.

"We want the public to know that we've heard them, and that we know many Americans are going through tough times," read the hoax release.

"GE will therefore give our 2010 tax refund back to the public and allow the public to decide how to spend it."

The release continued on in a similar vein.

"We didn't write the laws that let us legally avoid paying taxes, Congress did, but we benefit from those laws and now we'd like to share those benefits," it added.

"We're proud to be giving something back to America and we're proud to set an example for all industry to follow."

However, it was all a fake. The activist groups US Uncut and Yes Men have acknowledged they were behind the stunt

Yes Men's Andrew Boyd told CNN that frustration over seeing the big end of town avoid tax led the groups to taking action.

"I pay my taxes, why doesn't GE? That's where the impulse came to do this prank. It doesn't just come from us, every man on the street feels this sort of in their gut that there's something very wrong here," he said.

It comes as General Electric has been facing fierce criticism over reports it did not pay US income taxes last year, despite making billions of dollars in net profit.

White House press secretary Jay Carney recently made the point that companies like General Electric are playing within the tax rules.

"Companies hire, you know, armies of tax lawyers to understand how it works and to take advantage of the various loopholes that exist, that are legal," he said.

The bogus press release briefly rattled investors on Wall Street.

General Electric shares took a sharp tumble, but later recovered when the Associated Press admitted it had mistakenly reported the press release as fact.

"The Associated Press did not follow its own standards in this case for verifying the authenticity of a news release," said business editor Hal Ritter in a statement.

News agencies release tens of thousands of press releases as a matter of course.

The deputy director of the Centre for Media and Communications Law at the University of Melbourne Jason Bosland says the fake release with an accurate depiction of General Electric's logo could mean the groups behind the stunt will not be protected in US law.

"The US protects freedom of speech a lot more than, for example, Australia and they might try to argue that by doing this this is a form of freedom of expression and it's a way of criticising companies, and that's what the first amendment protects," he said.

"I think they'd be stretching that argument really because their intentions weren't really bona fide in that sense, they weren't acting in good faith in that sense.

"So there'd be no protection for example to defraud someone, and particularly shareholders and that sort of thing, just on the basis of your free speech rights, you would imagine."

Mr Bosland says the lack of fact-checking is not isolated to Associated Press.

"I think it reflects broader media practices actually where a lot of the material that comes in is, it's called "churnalism" where, you know, press releases come in and they're sort of spat out the other end, and I think it highlight problems with that and highlights the potential for that to lead to this sort of situation," he observed.

He says there could be lessons learnt for all news gatherers from this event.

"It seems to be happening more frequently, you know media organisations have to be very, very careful about re publishing material that comes in the form of press releases," he added.