The U.S. Securities and Exchange Commission (SEC) has recently charged multinational telecommunications and internet service provider, GTT Communications, Inc., for multiple disclosure failures and control violations. JDSupra reports that the charges were settled and stem from GTT’s failure to disclose critical information regarding “unsupported adjustments of more than $35 million”. These incomplete disclosures reportedly had a substantial impact on the company’s financial performance, leading to a decrease in their reported cost of revenue and an increase in their reported operational income by at least 15% across three quarters from 2019 to 2020.
According to the Order issued in this matter, GTT embarked on a rapid business expansion in 2017 and 2018. It was during this period that the lack of disclosure on substantial adjustments was detected. These undisclosed financial modifications signal significant breaches in the conduct of public companies and contribute to a distorted view of the company’s actual fiscal health.
The charges brought against GTT underline for legal professionals the ever-present importance of robust disclosure practices and rigorous internal controls, not only from a legal perspective but also for maintaining trust with shareholders and the wider financial markets. Neglecting these responsibilities can result in substantial regulatory penalties and reputational damage. This case acts as a timely reminder for corporations worldwide to reassess their internal control systems and disclosure practices, ensuring they meet the stringent requirements as set out by the regulator.