SEC Charges GTT Communications for Disclosure Failures

The Securities and Exchange Commission (SEC) has taken action against GTT Communications, Inc., alleging the company’s failure to disclose crucial information regarding unsupported adjustments made in its Commission filings. These adjustments significantly inflated GTT’s reported operating income by a minimum of 15 percent over three quarters spanning from 2019 through 2020. In a notable gesture, the SEC’s order acknowledges GTT’s prompt self-reporting, affirmative remedial measures, and substantial cooperation, leading to the decision not to impose a civil penalty against the company.

The SEC’s order outlines that GTT, after experiencing substantial growth driven by a series of acquisitions since 2017, encountered difficulties reconciling data generated by two pivotal operational systems. Over time, these systems displayed a persistent disparity between actual expenses, as reflected in invoices from vendors, and the company’s anticipated expenses. GTT found itself unable to reconcile these discrepancies and recognized its deficiency in essential information needed to accurately record and report certain expenses. Despite this, the SEC’s order reveals that GTT proceeded to make unsupported adjustments exceeding $35 million. These adjustments effectively reduced its reported cost-of-revenue, thereby inflating its reported operating income. Importantly, GTT failed to disclose material facts concerning these adjustments.

In December 2020, GTT disclosed the unreliability of previously issued consolidated financial statements and initiated an internal investigation. Upon discovering the issues related to costs, GTT took measures to rectify its accounting and financial reporting problems. The company also voluntarily self-reported the ongoing internal investigation to the SEC and cooperated extensively with the SEC’s staff during the investigation.

Mark Cave, Associate Director of the Division of Enforcement, emphasized GTT’s proactive approach, stating, “At a time when it was still evaluating the nature and impact of the accounting issues it had identified, GTT self-reported to the SEC and followed up by providing substantial cooperation throughout our investigation while taking significant steps to address the shortcomings in its processes. The SEC recognized GTT’s timely self-report, cooperation, and remediation in its decision not to impose a monetary penalty on the company.”

The SEC’s order states that GTT violated antifraud provisions outlined in the Securities Act of 1933, along with specific reporting, record-keeping, and internal control provisions embedded in federal securities laws. Without admitting or denying the SEC’s findings, GTT has consented to a cease-and-desist order, agreeing to refrain from further violations of securities laws.