The US Securities and Exchange Commission has sued AT&T Inc and three executives for allegedly disclosing nonpublic information to research analysts to avoid falling short of quarterly expectations in 2016.
AT&T allegedly learned in March 2016 that a steeper-than-expected decline in first quarter smartphone sales would leave the company falling short of analysts’ estimates, so the phone company’s chief financial officer directed investor relations employees to “work the analysts” to get them to lower their estimates, the SEC said in a court filing.
SEC’s New York Regional Office Director Richard R. Best said regulation FD levels the playing field by requiring that issuers disclosing material information do so broadly to the investing public, not just to select analysts.
“AT&T’s alleged selective disclosure of material information in private phone calls with analysts is precisely the type of conduct Regulation FD was designed to prevent,” said Richard R. Best
The SEC said investor relations executives Christopher Womack, Michael Black, and Kent Evans made private, one-on-one phone calls to analysts at approximately 20 firms, disclosing material nonpublic information in violation of securities laws.
AT&T denied the allegations in a lengthy statement published online, noting: “Not only did AT&T publicly disclose this trend on multiple occasions before the analyst calls in question, but AT&T also made clear that the declining phone sales had no material impact on its earnings.”
The firm also said its core business is selling wireless service, and a decline in equipment revenue is not material to AT&T. The SEC said the leaks prompted analysts to lower their forecasts, enabling AT&T to report better-than-expected revenue when it announced quarterly results on April 26, 2016. AT&T’s share price rose 1.7% the next day.
The SEC’s complaint, filed in federal district court in Manhattan, alleges that AT&T violated Regulation FD and reporting provisions of the Securities Exchange Act of 1934, and that Womack, Evans, and Black aided and abetted those violations. The complaint seeks permanent injunctive relief and civil monetary penalties against each defendant.
The SEC’s investigation was conducted by George N. Stepaniuk, Thomas Peirce, and David Zetlin-Jones of the SEC’s New York Regional Office. The SEC’s litigation will be conducted by Alexander M. Vasilescu, Victor Suthammanont, and Mr. Zetlin-Jones. The case is being supervised by Sanjay Wadhwa.