SEC Charges GTT Communications for Disclosure Failures

The Securities and Exchange Commission (SEC) has brought charges against GTT Communications, Inc. for its failure to disclose material information concerning unsupported adjustments made in several Commission filings. These adjustments significantly increased GTT's reported operating income by at least 15 percent during three quarters spanning from 2019 through 2020. However, despite the violations, the SEC's order acknowledges GTT's prompt self-reporting, active remedial measures, and substantial cooperation during the investigation, leading to the omission of civil penalties.

According to the SEC's order, GTT Communications experienced rapid growth from a series of acquisitions starting in 2017. As a result, the company faced difficulties in reconciling data generated by two key operational systems. Over time, these systems exhibited a persistent discrepancy between actual expenses, documented in invoices from vendors, and the company's projected expenses. GTT was unable to reconcile these disparities and knew it lacked crucial information to accurately record and report specific expenses. Nonetheless, GTT made unsupported adjustments exceeding $35 million that lowered its reported cost-of-revenue, consequently inflating its reported operating income. Importantly, these adjustments were not adequately disclosed in the company's filings.

In December 2020, GTT disclosed that previously issued consolidated financial statements could no longer be relied upon and initiated an internal investigation. As the issues regarding costs came to light, GTT took steps to rectify its accounting and financial reporting issues. Furthermore, it voluntarily self-reported the matters under internal investigation to the SEC, cooperating fully throughout the investigation process.

Mark Cave, Associate Director of the Division of Enforcement, commented, "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-reporting, cooperation, and remediation efforts, leading to the decision not to impose monetary penalties on the company.

The SEC's order finds that GTT violated antifraud provisions of the Securities Act of 1933 and certain reporting, record-keeping, and internal control provisions of federal securities laws. Without admitting or denying the SEC's findings, GTT has consented to cease and desist from further violations of securities laws.