SEC Charges GTT Communications with Disclosure Failures Over Adjustments to Operating Income

SEC Charges GTT Communications for Disclosure Failures

The Securities and Exchange Commission today charged GTT Communications, Inc. with failing to disclose material information about unsupported adjustments the company made in several Commission filings, which increased GTT’s reported operating income by at least 15 percent in three quarters from 2019 through 2020. The SEC’s order credits GTT with promptly self-reporting, undertaking affirmative remedial measures, and providing substantial cooperation to the SEC, and does not order a civil penalty against GTT.

According to the SEC’s order, after experiencing rapid growth through a series of acquisitions beginning in 2017, GTT struggled to reconcile data that was being generated by two of the company’s key operational systems. Over time, the two systems began to show a persistent discrepancy between actual expenses, as reflected in invoices received from vendors, and the company’s expected expenses. GTT was unable to reconcile these two systems and knew that it lacked sufficient information necessary to accurately record and report certain expenses. The SEC’s order finds that GTT nonetheless made unsupported adjustments of more than $35 million that lowered its reported cost-of-revenue, thereby increasing its reported operating income, but failed to disclose material facts about these adjustments.

SEC Charges Cash Flow King Podcast Host with Perpetrating $11 Million Ponzi Scheme

The Securities and Exchange Commission today charged Matthew Motil, host of the podcast, “The Cash Flow King,” for fraudulently raising approximately $11 million from more than 50 investors in a Ponzi scheme involving notes that were purportedly backed by residential properties.

According to the SEC’s complaint, Motil, of North Olmsted, Ohio, defrauded investors with promises of low-risk, high-return promissory notes purportedly collateralized by first mortgages on homes located throughout Ohio. The SEC’s complaint alleges that Motil promoted the investments on his website, inviting potential investors to “be a real estate investing badass!,” and on his podcast, where he assured investors that the investments he offered were safe and backed by a “first lien position” on the underlying real estate assets. According to the SEC’s complaint, Motil told investors that he would pay the investors returns on their investments from profits from renovating, reselling, refinancing, and renting the properties. As the complaint alleges, however, Motil did not in fact secure first lien positions for the investors as promised and regularly sold multiple promissory notes he claimed were secured by the same property to multiple investors. In one instance, Motil allegedly sold more than $1 million of promissory notes to 20 investors, each note supposedly collateralized by the same property he had acquired for $47,000. Rather than renovate the properties, Motil allegedly used investor money to make Ponzi payments to previous investors and for his own extravagant personal expenses, including to rent a lakeside mansion, purchase courtside season tickets to NBA games, and make $400,000 in credit card payments for his wife, Amy Motil, who is named as a relief defendant.

Sam Bankman-Fried’s trial to test dueling explanations for FTX’s collapse

In U.S. prosecutors’ telling, Sam Bankman-Fried embezzled money from depositors in his FTX cryptocurrency exchange ever since he launched it in 2019, and the resulting shortfall led directly to its collapse as crypto prices swooned last year.

But in his own version and in explanations put forth by his lawyers, Bankman-Fried thought FTX, like a bank, could make investments with customers’ money as long as they were able to withdraw it – and he did not know that actions taken by his closest colleagues had jeopardized the availability of funds.

Over the course of six weeks starting on Oct. 3, a federal jury in Manhattan is due to weigh these dueling narratives during Bankman-Fried’s criminal trial on fraud charges, before determining whether the 31-year-old former billionaire is guilty on seven counts of fraud and conspiracy.

U.S. Government Shutdown, Assuming It Doesn’t Run Long, Will Slow, Not Cripple Crypto Efforts

Anne Kelley, a longtime former SEC official who is now at Mercury Strategies, said that while the agency’s plan technically “only allows work to be done to prevent a risk of imminent harm to investors, our markets, or property,” it has some budgetary flexibility to use reserved funds.

In 2013, she said, it stayed open “for the entire 16-day shutdown period,” and in 2018, it kept its doors open for a portion of that record shutdown.

“It will be interesting to see if the SEC has the necessary funds this time and whether they decide to stay open,” Kelley said.

One silver lining of a sort: Most of the SEC’s investigations and enforcement activity will grind to a halt, apart from urgent interventions to rescue investors. That means the agency is unlikely to continue what’s been a steady enforcement drumbeat against crypto firms, giving a temporary reprieve to the companies that haven’t been targeted yet.

City of London Watchdogs to Ask Firms to Lay Out Diversity Plans

UK regulators want to boost diversity and inclusion in the financial services sector by requiring firms to set targets and making clear that a banker’s private behavior can be relevant to determining their suitability to work in the industry.

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The Prudential Regulation Authority and FCA — the City of London’s twin regulators — are seeking views from the industry until Dec. 18, and plan to publish their final rules next year.

Under the proposed rules, an investment firm with 400 employees would also have to:

–Maintain an effective D&I strategy

–Set appropriate diversity targets

–Collect demographic and inclusion data from staff, reporting this to the regulator and disclosing it on an aggregate basis

–Recognize a lack of D&I as a non-financial risk

Electric Vertical Aviation Company Hit with SPAC-Related Securities Suit

One of the significant trends over the last several years contributing to the overall total volume of securities class action lawsuit filings has been the relative prevalence of securities suits related to SPACs and post-SPAC merger companies. Even though it has now been a considerable amount of time since the SPAC IPO frenzy peaked in the first half of 2021, the lawsuits relating to SPACs and post-SPAC-merger companies continue to be filed. In the latest example of this phenomenon, last week a plaintiff shareholder filed a securities class action lawsuit against the vertical aviation company Archer Aviation and certain of its directors and officers. Archer became a publicly traded company through a September 2021 merger with a SPAC. As discussed below, the new lawsuit against Archer has certain features in common with many of the previously filed SPAC-related lawsuits. A copy of the complaint filed against Archer Aviation can be found here.

FTX Founder SBF Files Repeat Request for Temporary Release Before Trial

Sam Bankman-Fried, the founder of collapsed cryptocurrency exchange FTX, has renewed a request for temporary release from jail during the course of his trial, according to a letter from his lawyers to the judge overseeing the case filed late Monday.

The request saga started in August, when his release on bond was revoked and he was locked up after a judge ruled he’d probably tried to tamper with witnesses. On Sept. 12, Bankman-Fried’s request to overturn that decision was denied. An appeals court rejected an attempt to overturn the ruling on Sep. 21.