Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 1 of 28 Page ID #:1
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`
`
`
`
`Laurence M. Rosen (SBN 219683)
`THE ROSEN LAW FIRM, P.A.
`355 South Grand Avenue, Suite 2450
`Los Angeles, CA 90071
`Telephone: (213) 785-2610
`Facsimile: (213) 226-4684
`Email: lrosen@rosenlegal.com
`
`Counsel for Plaintiff
`
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
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`
`
`No.
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`CLASS ACTION COMPLAINT
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` FOR VIOLATIONS OF THE
`FEDERAL SECURITIES LAWS
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`CLASS ACTION
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`JURY TRIAL DEMANDED
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`
`FRANK ROTH BETEILIGUNGS
`GmbH, Individually and on behalf of
`all others similarly situated,
`
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`Plaintiff,
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`
`v.
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`
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`GTT COMMUNICATIONS, INC.,
`RICHARD D. CALDER, JR., ERNIE
`ORTEGA, MICHAEL T. SICOLI,
`DANIEL M. FRASER, and STEVEN
`BERNS,
`
` Defendants.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 2 of 28 Page ID #:2
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`Plaintiff Frank Roth Beteiligungs GmbH (“Plaintiff”) alleges the following
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`upon personal knowledge as to allegations specifically pertaining to Plaintiff and,
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`as to all other matters, upon the investigation of counsel, which included: (a)
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`review and analysis of public filings with the United States Securities and
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`Exchange Commission (“SEC”) made by GTT Communications, Inc. (“GTT” or
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`the “Company”) and related parties; (b) review and analysis of press releases and
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`other publications disseminated by GTT and related parties; (c) review and
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`analysis of shareholder communications, conference calls and postings on GTT’s
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`website concerning the Company’s public statements; (d) review and analysis of
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`news articles concerning GTT and related parties; and (e) review of other
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`publicly available information concerning GTT, related parties, and/or the
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`Individual Defendants (as defined below).
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`NATURE OF THE ACTION
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`1.
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`This is a federal securities class action brought on behalf of all
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`persons or entities that purchased or otherwise acquired GTT publicly traded
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`securities from May 5, 2016 through November 9, 2020, inclusive (the “Class
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`Period”), seeking to pursue remedies under the Securities Exchange Act of 1934
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`(the “Exchange Act”). Plaintiff alleges that Defendants violated the Exchange
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`Act by publishing false and misleading statements to artificially inflate the
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`Company’s stock price.
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`2.
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`GTT operates a global communications network, providing
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`telecommunications services to large, multinational enterprises, carriers, and
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`governments across five continents. Throughout the Class Period, GTT stated
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`that its internal controls over financial reporting were “effective” and provided
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`“reasonable assurance” that all required information was being disclosed.
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 3 of 28 Page ID #:3
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`3.
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`In truth, GTT’s internal controls over financial reporting were
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`inadequate, which led to years of inaccurate financial reporting, including failing
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`to make adequate adjustments to the Company’s Cost of Telecommunication
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`Services and failing to recognize certain expenses.
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`4.
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`As a result of GTT’s inadequate internal controls, the Company
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`announced after market hours on August 10, 2020 that it would delay its filing of
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`its quarterly report for the quarter ended June 30, 2020. The Company stated it
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`had identified “certain issues related to the recording and reporting of Cost of
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`Telecommunications Services and related internal controls.”
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`5.
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`On this news, GTT shares fell by $0.65, or over 11%, from closing
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`at $5.61 on August 10, 2020 to close at $4.96 on August 11, 2020.
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`6.
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`On November 9, 2020, the Company announced its quarterly report
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`for the quarter ended September 30, 2020 would be delayed as well. The
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`Company stated the delay was caused by the ongoing review and “examining the
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`accounting for Cost of Telecommunications Services and [. . .] a number of issues
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`in connection with the Company’s previously issued financial statements”.
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`7.
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`On this news, GTT shares fell by $0.04, or 1%, to close at $3.96 on
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`November 9, 2020.
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`8.
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`Plaintiff and the other Class members have suffered significant
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`damages due to Defendants’ false and misleading statements and omissions.
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`JURISDICTION AND VENUE
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`9.
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`The claims asserted herein arise under and pursuant to Sections
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`10(b) and 20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule
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`10b-5 promulgated thereunder by the SEC (17 C.F.R. § 240.10b-5).
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 4 of 28 Page ID #:4
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`10. This Court has jurisdiction over the subject matter of this action
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`pursuant to 28 U.S.C. § 1331, and Section 27 of the Exchange Act (15 U.S.C.
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`§78aa).
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`11. Venue is proper in this judicial district pursuant to 28 U.S.C. §
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`1391(b) and Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)) as the alleged
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`misstatements entered, the subsequent damages took place in, and the Company
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`maintains locations in this judicial district.
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`12.
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`In connection with the acts, conduct and other wrongs alleged in this
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`complaint, defendants, directly or indirectly, used the means and instrumentalities
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`of interstate commerce, including but not limited to, the United States mails,
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`interstate telephone communications and the facilities of the national securities
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`exchange.
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`PARTIES
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`13. Plaintiff, as set forth in the accompanying Certification, purchased
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`the Company’s securities at artificially inflated prices during the Class Period and
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`was damaged upon the revelation of the alleged corrective disclosure.
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`14. Defendant GTT is incorporated in the state of Delaware, and the
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`Company’s principal executive offices are located at 7900 Tysons One Place,
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`Suite 1450, McLean, VA 22102. GTT securities trade on the New York Stock
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`Exchange (“NYSE”) under the symbol “GTT.”
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`15. Defendant Richard D. Calder, Jr. (“Calder”) was the Company’s
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`Chief Executive Officer (“CEO”) from the start of the Class Period to May 31,
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`2020.
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`16. Defendant Ernie Ortega (“Ortega”) was the interim CEO of GTT
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`from July 6, 2020 through the end of the Class Period.
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 5 of 28 Page ID #:5
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`17. Defendant Michael T. Sicoli (“Sicoli”) was the Company’s Chief
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`Financial Officer (“CFO”) from the start of the Class Period to September 2019.
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`18. Defendant Daniel M. Fraser (“Fraser”) was the Company’s interim
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`CFO from September 2019 to April 6, 2020.
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`19. Defendant Steven Berns (“Berns”) was the Company’s CFO from
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`April 6, 2020 through the end of the Class Period.
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`20. Defendants Calder, Ortega, Sicoli, Fraser and Berns are collectively
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`referred to herein as the “Individual Defendants.”
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`21. Each of the Individual Defendants:
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`(a)
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`directly participated in the management of the Company;
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`(b) was directly involved in the day-to-day operations of the
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`Company at the highest levels;
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`(c) was privy to confidential proprietary information concerning
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`the Company and its business and operations;
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`(d) was directly or indirectly involved in drafting, producing,
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`reviewing and/or disseminating the false and misleading
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`statements and information alleged herein;
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`(e) was directly or indirectly involved in the oversight or
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`implementation of the Company’s internal controls;
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`(f) was aware of or recklessly disregarded the fact that the false
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`and misleading statements were being issued concerning the
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`Company; and/or
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`(g)
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`approved or ratified these statements in violation of the federal
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`securities laws.
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`22. The Company is liable for the acts of the Individual Defendants and
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`its employees under the doctrine of respondeat superior and common law
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 6 of 28 Page ID #:6
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`principles of agency because all of the wrongful acts complained of herein were
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`carried out within the scope of their employment.
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`23. The scienter of the Individual Defendants and other employees and
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`agents of the Company is similarly imputed to the Company under respondeat
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`superior and agency principles.
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`24. The Company and the Individual Defendants are referred to herein,
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`collectively, as the “Defendants.”
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`SUBSTANTIVE ALLEGATIONS
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`Materially False and Misleading
`Statements Issued During the Class Period
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`25. On May 5, 2016, GTT filed a Form 10-Q for the fiscal quarter ended
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`March 31, 2016 (the “1Q 2016 10-Q”). Attached to the 1Q 2016 10-Q were
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`certifications pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) signed by
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`Defendants Calder and Sicoli attesting to the accuracy of financial reporting, the
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`disclosure of any material changes to the Company’s internal control over
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`financial reporting and the disclosure of all fraud.
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`26. The 1Q 2016 10-Q stated the following, in pertinent part, regarding
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`GTT’s internal controls:
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`Evaluation of Disclosure Controls and Procedures
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`Our management carried out an evaluation required by Rule
`13a-15 under the Securities Exchange Act of 1934, as amended
`(the “Exchange Act”), under the supervision of and with the
`participation of our Chief Executive Officer (“CEO”) and Chief
`Financial Officer (“CFO”), of the effectiveness of our disclosure
`controls and procedures as defined in Rule 13a-15 and 15d-15
`under the Exchange Act (“Disclosure Controls”). Based on our
`evaluation, our CEO and CFO concluded that our disclosure controls
`and procedures are designed at a reasonable assurance level and are
`effective to provide reasonable assurance that information we are
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 7 of 28 Page ID #:7
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`required to disclose in reports that we file or submit under the
`Exchange Act is recorded, processed, summarized and reported
`within the time periods specified in Securities and Exchange
`Commission rules and forms and
`that such
`information
`is
`accumulated and communicated to our management, including our
`CEO and CFO, as appropriate, to allow timely decisions regarding
`required disclosure. The CEO and the CFO, with assistance from
`other members of management, have reviewed the effectiveness of
`our disclosure controls and procedures as of March 31, 2016, and
`based on their evaluation, have concluded that the disclosure
`controls and procedures were effective as of such date.
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`Changes in Internal Control over Financial Reporting
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`There were no changes in our internal control over financial
`reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the
`Securities Exchange Act of 1934, that occurred during the period
`ended March 31, 2016 that have materially affected, or are
`reasonably likely to materially affect, our internal control over
`financial reporting.
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`(Emphasis added.)
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`27. The 1Q 2016 10-Q also stated the following, in relevant part,
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`regarding GTT’s Cost of Telecommunications Services Provided:
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`Cost of Telecommunications Services Provided
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`Cost of telecommunication services provided increased by
`$28.5 million, or 75.6%, from $37.7 million for the three months
`ended March 31, 2015 to $66.2 million for the three months ended
`March 31, 2016. Consistent with our increase in revenue, the
`increase in cost of telecommunication services provided was
`principally driven by the acquisitions of MegaPath and One Source.
`
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`On a constant currency basis using the average exchange rates
`in effect during the three months ended March 31, 2015, cost of
`telecommunication services provided would have been higher by
`$0.2 million for the three months ended March 31, 2016.
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 8 of 28 Page ID #:8
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`(Emphasis added.)
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`28. On August 8, 2016, the Company filed a Form 10-Q for the fiscal
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`quarter ended June 30, 2016 (the “2Q 2016 10-Q”). Attached to the 2Q 2016 10-Q
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`were SOX certifications signed by Defendants Calder and Sicoli attesting to the
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`accuracy of financial reporting, the disclosure of any material changes to the
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`Company’s internal control over financial reporting and the disclosure of all fraud.
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`29. The 2Q 2016 10-Q stated, in relevant part, the following regarding
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`GTT’s internal controls:
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`Evaluation of Disclosure Controls and Procedures
`
`
`Our management carried out an evaluation required by Rule
`13a-15 under the Securities Exchange Act of 1934, as amended
`(the “Exchange Act”), under the supervision of and with the
`participation of our Chief Executive Officer (“CEO”) and Chief
`Financial Officer (“CFO”), of the effectiveness of our disclosure
`controls and procedures as defined in Rule 13a-15 and 15d-15
`under the Exchange Act (“Disclosure Controls”). Based on our
`evaluation, our CEO and CFO concluded that our disclosure controls
`and procedures are designed at a reasonable assurance level and are
`effective to provide reasonable assurance that information we are
`required to disclose in reports that we file or submit under the
`Exchange Act is recorded, processed, summarized and reported
`within the time periods specified in Securities and Exchange
`Commission rules and forms and
`that such
`information
`is
`accumulated and communicated to our management, including our
`CEO and CFO, as appropriate, to allow timely decisions regarding
`required disclosure. The CEO and the CFO, with assistance from
`other members of management, have reviewed the effectiveness of
`our disclosure controls and procedures as of June 30, 2016, and
`based on their evaluation, have concluded that the disclosure
`controls and procedures were effective as of such date.
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`Changes in Internal Control over Financial Reporting
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`During the three months ended June 30, 2016, we implemented
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 9 of 28 Page ID #:9
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`the
`a new financial accounting system. In connection with
`implementation of this new system, we updated many of the
`processes and procedures related to our internal control over financial
`reporting, as needed. We do not believe the implementation of the
`new system or the corresponding changes in processes and
`procedures has had or will have a material or adverse effect on our
`internal control over financing reporting. Except as otherwise
`described above, there have been no other changes in our internal
`control over financial reporting (as defined in Rules 13a-15(f) and
`15d-15(f) under the Exchange Act) as of June 30, 2016, that has
`materially affected, or is reasonably likely to materially affect our
`internal control over financial reporting.
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`(Emphasis added.)
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`30. The 2Q 2016 10-Q also stated, in relevant part, the following
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`regarding GTT’s Cost of Telecommunications Services Provided:
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`Cost of Telecommunications Services Provided
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`Cost of telecommunications services provided increased by
`$16.8 million, or 32.7%, from $51.5 million for the three months
`ended June 30, 2015 to $68.3 million for the three months ended
`June 30, 2016. Consistent with our increase in revenue, the increase
`in cost of telecommunications services provided was principally
`driven by the acquisitions of OSN and Telnes, as well as organic
`growth.
`On a constant currency basis using the average exchange rates
`in effect during the three months ended June 30, 2015, cost of
`telecommunications services provided would have been higher by
`$0.1 million for the three months ended June 30, 2016.
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`(Emphasis added.)
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`31. On November 9, 2016, the Company filed a Form 10-Q for the fiscal
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`quarter ended September 30, 2016 (the “3Q 2016 10-Q”). Attached to the 3Q
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`2016 10-Q were SOX certifications signed by Defendants Calder and Sicoli
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`attesting to the accuracy of financial reporting, the disclosure of any material
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 10 of 28 Page ID #:10
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`changes to the Company’s internal control over financial reporting and the
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`disclosure of all fraud.
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`32. The 3Q 2016 10-Q stated, in relevant part, the following regarding
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`GTT’s internal controls:
`
`Evaluation of Disclosure Controls and Procedures
`
`
`Our management carried out an evaluation required by Rule
`13a-15 under the Securities Exchange Act of 1934, as amended
`(the “Exchange Act”), under the supervision of and with the
`participation of our Chief Executive Officer (“CEO”) and Chief
`Financial Officer (“CFO”), of the effectiveness of our disclosure
`controls and procedures as defined in Rule 13a-15 and 15d-15
`under the Exchange Act (“Disclosure Controls”). Based on our
`evaluation, our CEO and CFO concluded that our disclosure controls
`and procedures are designed at a reasonable assurance level and are
`effective to provide reasonable assurance that information we are
`required to disclose in reports that we file or submit under the
`Exchange Act is recorded, processed, summarized and reported
`within the time periods specified in Securities and Exchange
`Commission rules and forms and
`that such
`information
`is
`accumulated and communicated to our management, including our
`CEO and CFO, as appropriate, to allow timely decisions regarding
`required disclosure. The CEO and the CFO, with assistance from
`other members of management, have reviewed the effectiveness of
`our disclosure controls and procedures as of September 30, 2016,
`and based on their evaluation, have concluded that the disclosure
`controls and procedures were effective as of such date.
`
`Changes in Internal Control over Financial Reporting
`
`
`There were no changes in our internal control over financial
`reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
`Exchange Act) as of September 30, 2016, that has materially
`affected, or is reasonably likely to materially affect our internal
`control over financial reporting.
`
`(Emphasis added.)
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 11 of 28 Page ID #:11
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`33. The 3Q 2016 10-Q also stated the following, in pertinent part,
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`regarding GTT’s Cost of Telecommunications Services Provided:
`
`Cost of Telecommunications Services Provided
`
`
`Cost of telecommunications services provided increased by
`$14.8 million, or 27.8%, from $53.4 million for the three months
`ended September 30, 2015 to $68.2 million for the three months
`ended September 30, 2016. Consistent with our increase in revenue,
`the increase in cost of telecommunications services provided was
`principally driven by the acquisitions of OSN and Telnes, as well as
`organic growth.
`On a constant currency basis using the average exchange rates
`in effect during the three months ended September 30, 2015, cost of
`telecommunications services provided would have been higher by
`$0.5 million for the three months ended September 30, 2016.
`
`(Emphasis added.)
`
`34. On March 8, 2017, the Company filed a Form 10-K for the fiscal
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`year ended December 31, 2016 (the “2016 10-K”). Attached to the 2016 10-K
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`were SOX certifications signed by Defendants Calder and Sicoli attesting to the
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`accuracy of financial reporting, the disclosure of any material changes to the
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`Company’s internal control over financial reporting and the disclosure of all fraud.
`
`35. The 2016 10-K stated, in relevant part, the following regarding
`
`GTT’s internal controls:
`
`Management’s Report on Internal Control over Financial
`Reporting and Attestation Report of the Registered Public
`Accounting Firm
`
`for establishing and
`responsible
`is
`Our management
`maintaining adequate internal control over financial reporting (as
`defined in Rule 13a-15(f) under the Exchange Act). Management
`conducted an assessment of the effectiveness of our internal control
`over financial reporting based on the criteria set forth in Internal
`
`10
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 12 of 28 Page ID #:12
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`
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`Control - Integrated Framework issued by the Committee of
`Sponsoring Organizations of the Treadway Commission (2013
`framework). Based on the assessment, management has concluded
`that its internal control over financial reporting was effective as of
`December 31, 2016, to provide reasonable assurance regarding the
`reliability of financial reporting and the preparation of financial
`statements in accordance with U.S. GAAP. The effectiveness of our
`internal control over financial reporting as of December 31, 2016, has
`been audited by CohnReznick LLP, an independent registered public
`accounting firm, as stated in their report, which appears herein.
`
`Changes in Internal Control Over Financial Reporting
`
`During the year ended December 31, 2016, we implemented a
`new financial accounting system.
` In connection with
`the
`implementation of this new system, we updated many of the
`processes and procedures related to our internal control over financial
`reporting, as needed. We do not believe the implementation of the
`new system or the corresponding changes in processes and
`procedures has had or will have a material or adverse effect on our
`internal control over financing reporting. Except as otherwise
`described above, there were no other changes in our internal
`control over financial reporting (as defined in Rules 13a-15(f) and
`15d-15(f) under the Exchange Act) during the quarter ended
`December 31, 2016, that has materially affected, or is reasonably
`likely to materially affect our internal control over financial
`reporting.
`
`(Emphasis added.)
`
`36. The 2016 10-K also stated the following, in pertinent part, regarding
`
`GTT’s Cost of Telecommunications Services Provided:
`
`Cost of Telecommunications Services Provided
`
`
`Cost of telecommunications services provided increased by
`$69.6 million, or 34.0%, from $204.5 million for the year ended
`December 31, 2015 to $274.0 million for the year ended December
`31, 2016. Consistent with our increase in revenue, the increase in cost
`of telecommunications services provided was principally driven by
`the Acquisitions, as well as organic growth and the purchase of
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`11
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 13 of 28 Page ID #:13
`
`
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`certain customer contracts.
`On a constant currency basis using the average exchange rates
`in effect during the year ended December 31, 2015, cost of
`telecommunications services provided would have been higher by
`$1.0 million for the year ended December 31, 2016.
`
`(Emphasis added.)
`
`37. On March 1, 2018, the Company filed a Form 10-K for the fiscal
`
`year ended December 31, 2017 (the “2017 10-K”). Attached to the 2017 10-K
`
`were SOX certifications signed by Defendants Calder and Sicoli attesting to the
`
`accuracy of financial reporting, the disclosure of any material changes to the
`
`Company’s internal control over financial reporting and the disclosure of all fraud.
`
`38. The 2017 10-K stated, in pertinent part, the following regarding
`
`GTT’s internal controls:
`
`Management’s Report on Internal Control over Financial
`Reporting and Attestation Report of the Registered Public
`Accounting Firm
`
`for establishing and
`responsible
`is
`Our management
`maintaining adequate internal control over financial reporting (as
`defined in Rule 13a-15(f) under the Exchange Act). Management
`conducted an assessment of the effectiveness of our internal control
`over financial reporting based on the criteria set forth in Internal
`Control - Integrated Framework issued by the Committee of
`Sponsoring Organizations of the Treadway Commission (2013
`framework). Based on the assessment, management has concluded
`that its internal control over financial reporting was effective as of
`December 31, 2017, to provide reasonable assurance regarding the
`reliability of financial reporting and the preparation of financial
`statements in accordance with U.S. GAAP. The effectiveness of our
`internal control over financial reporting as of December 31, 2017, has
`been audited by CohnReznick LLP, an independent registered public
`accounting firm, as stated in their report, which appears herein.
`
`Changes in Internal Control Over Financial Reporting
`
`12
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`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 14 of 28 Page ID #:14
`
`
`
`
`
`Except for the implementation of certain internal controls
`related to the adoption of the new revenue recognition standard
`(Topic 606), there were no changes in our internal control over
`financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
`under the Exchange Act) during the year ended December 31, 2017,
`that materially affected, or are reasonably likely to materially
`affect, our internal control over financial reporting. The Company
`implemented new controls as part of its effort to adopt Topic 606.
`The adoption of Topic 606 required the implementation of new
`accounting processes, which changed the Company's internal controls
`over revenue recognition and financial reporting. We implemented
`these internal controls to ensure we adequately evaluated our
`contracts and properly assessed the impact of Topic 606 on our
`financial statements to facilitate its adoption in 2018.
`
`(Emphasis added.)
`
`39. The 2017 10-K also stated the following, in pertinent part, regarding
`
`GTT’s Cost of Telecommunications Services Provided:
`
`Cost of Telecommunications Services Provided
`
`
`Cost of telecommunications services provided increased by
`$152.5 million, or 54.5%, from $279.6 million for the year ended
`December 31, 2016 to $432.1 million for the year ended December
`31, 2017. Consistent with our increase in revenue, the increase in cost
`of telecommunications services provided was principally driven by
`2017 Acquisitions and the purchase of certain customer contracts.
`On a constant currency basis using the average exchange rates
`in effect during the year ended December 31, 2016, cost of
`telecommunications services provided would have been higher by
`$1.0 million for the year ended December 31, 2017.
`
`(Emphasis added.)
`
`40. On March 1, 2019, the Company filed a Form 10-K for the fiscal
`
`year ended December 31, 2018 (the “2018 10-K”). Attached to the 2018 10-K
`
`were SOX certifications signed by Defendants Calder and Sicoli attesting to the
`
`13
`
`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
`
`1
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`2
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`3
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`4
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 15 of 28 Page ID #:15
`
`
`
`accuracy of financial reporting, the disclosure of any material changes to the
`
`Company’s internal control over financial reporting and the disclosure of all fraud.
`
`41. The 2018 10-K stated, in pertinent part, the following regarding
`
`GTT’s internal controls:
`
`Management’s Report on Internal Control over Financial
`Reporting and Audit Report of the Registered Public Accounting
`Firm
`
`for establishing and
`responsible
`is
`Our management
`maintaining adequate internal control over financial reporting (as
`defined in Rule 13a-15(f) under the Exchange Act). Management
`conducted an assessment of the effectiveness of our internal control
`over financial reporting based on the criteria set forth in Internal
`Control - Integrated Framework issued by the Committee of
`Sponsoring Organizations of the Treadway Commission (2013).
`Based on the assessment, management has concluded that its
`internal control over financial reporting was effective as of
`December 31, 2018, to provide reasonable assurance regarding the
`reliability of financial reporting and the preparation of financial
`statements in accordance with U.S. GAAP. The effectiveness of our
`internal control over financial reporting as of December 31, 2018, has
`been audited by CohnReznick LLP, an independent registered public
`accounting firm, as stated in their report, which appears herein.
`
`Changes in Internal Control Over Financial Reporting
`
`Except for the 1) Company's design and implementation of
`new and enhanced controls to remediate the material weakness
`described above, and 2) the implementation of certain internal
`controls related to the adoption of the new leasing standard (Topic
`842), there were no changes in our internal control over financial
`reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
`Exchange Act) during the three months ended December 31, 2018,
`that materially affected, or are reasonably likely to materially
`affect, our internal control over financial reporting. The Company
`implemented new controls as part of its effort to adopt Topic 842.
`The adoption of Topic 842 required the implementation of new
`accounting processes, which changed the Company's internal controls
`
`14
`
`CLASS ACTION COMPLAINT FOR VIOLATIONS OF
`THE FEDERAL SECURITIES LAWS
`
`1
`
`2
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`3
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`Case 2:21-cv-00270-DOC-AS Document 1 Filed 01/12/21 Page 16 of 28 Page ID #:16
`
`
`
`over lease accounting. We implemented these internal controls to
`ensure we adequately evaluated our leases and properly assessed the
`impact of Topic 842 on our financial statements to facilitate its
`adoption in 2019.
`
`(Emphasis added.)
`
`42. The 2018 10-K also stated, in relevant part, the following regarding
`
`GTT’s Cost of Telecommunications Services:
`
`Cost of Telecommunications Services
`
`
`Cost of telecommunications services increased by $387.3
`million, or 89.6%, from $432.1 million for the year ended
`December 31, 2017 to $819.4 million for the year ended December
`31, 2018. Recurring cost of telecommunications services was
`approximately 94% and 95% of total cost of telecommunications
`services for the year ended December 31, 2018 and 2017,
`respectively. Consistent with ou