SEC Sues AT&T Over Information Disclosed to Analysts

AT&T Inc. and three of its executives were hit with an unusual lawsuit by federal regulators claiming that they selectively disclosed nonpublic information about the company’s finances to Wall Street analysts. The suit by the Securities and Exchange Commission (SEC) is a rare claim that a company violated Regulation FD, failing to disseminate material information widely.

Filed Friday in federal court in New York, the complaint alleges that in early March 2016 the company and executives Christopher C. Womack, Kent D. Evans, and Michael J. Black learned that first-quarter revenue was expected to fall short of analyst estimates because of a larger-than-expected decline in smartphone sales. So the three made private calls to analysts at about 20 firms, disclosing information that included internal sales data and the impact on revenue, according to the SEC.

The analysts then reduced their revenue forecasts, the agency said. It said the point of the calls was to avoid a revenue miss for the company. According to the SEC, the object of the phone calls was to get enough analysts to reduce forecasts that the consensus revenue estimate would decline to the level AT&T expected to report to the public. That way, the company wouldn’t have a revenue miss, which would have been its third quarterly miss in a row, the agency said.

AT&T called the allegations “meritless.”

Level Playing Field

According to the agency, AT&T’s CFO told the company’s investor relations department to “work the analysts who still have equipment revenue too high.” The department’s director then told Womack, Evans, and Black to talk to analysts one by one about their estimates and “walk the analysts down,” or get them to reduce their forecasts, the SEC alleged.

“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,” Richard R. Best, director of the SEC’s New York Regional Office, said in a statement. “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.”

AT&T said in a statement that the suit “represents a significant departure from the SEC’s own longstanding Regulation FD enforcement policy and is inconsistent with the testimony of all who participated in these conversations. Tellingly, after spending four years investigating this matter, the SEC does not cite a single witness involved in any of these analyst calls who believes that material nonpublic information was conveyed to them.”

The company said it “maintains the highest standards of ethics and compliance” and looks forward to “having our ‘day in court’ to demonstrate conclusively that our investor relations employees complied with Regulation FD, and that the allegations in the SEC’s complaints are meritless.”

Neither the CFO nor the director of investor relations was named as a defendant in the case.

Regulation FD was adopted in 2000, before the dominance of social media. The SEC modified its view of permissible venues for disclosure in a 2013 decision not to act against Netflix Inc. co-CEO Reed Hastings, who wrote in a Facebook post that views on his company’s service had exceeded a billion hours for the first time.

In 2019, the SEC found that TherapeuticsMD had violated the rule by sharing information with sell-side research analysts. It said the company had agreed to pay a $200,000 penalty without admitting or denying the findings.

—With assistance from Matt Robinson and Scott Moritz.

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