SEC Charges AT&T, Three Execs With Selectively Providing Info to Wall Street Analysts

AT&T Woodlawn building
(Image credit: AT&T)

The Securities and Exchange Commission has charged AT&T and three of the company’s investor relations executives with violations of federal Regulation FD, the rule that governs the full disclosure of material financial information, for selectively releasing smartphone sales data to certain research analysts back in 2016. AT&T has denied the charges.

According  to the SEC, AT&T learned in March 2016 that a steeper than expected decline in smartphone sales would cause its overall revenue to fall short of forecasts. The complaint, filed in federal district court in Manhattan, alleges that in order not to fall short of consensus revenue estimates for the third straight quarter, AT&T investor relations executives Christopher Womack, Michael Black, and Kent Evans made private, one-on-one phone calls to analysts at about 20 different firms.  

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“On these calls, the AT&T executives allegedly disclosed AT&T's internal smartphone sales data and the impact of that data on internal revenue metrics, despite the fact that internal documents specifically informed Investor Relations personnel that AT&T's revenue and sales of smartphones were types of information generally considered 'material' to AT&T investors, and therefore prohibited from selective disclosure under Regulation FD,” the SEC said in the complaint. 

The SEC claims that as a result of the calls the analysts reduced their revenue forecasts for the company, leading the overall consensus estimates to fall below what AT&T reported to the public on April 26, 2016. 

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"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," said Richard R. Best, Director of the SEC's New York Regional Office, in a press release. "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."

The SEC's complaint 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.

In a statement, AT&T denied the allegations, adding that the SEC does not cite any witnesses involved in any of the analyst calls that believe they received nonpublic information, even after a four-year investigation. 

“The information discussed during these March and April 2016 conversations concerned the widely reported, industry-wide phase-out of subsidy programs for new smartphone purchases and the impact of this trend on smartphone upgrade rates and equipment revenue," AT&T said in the statement. “Not surprisingly, without device subsidies, customers upgraded their smartphones less frequently, leading to a reduction in equipment revenue.”

AT&T said it disclosed the trend on several occasions before the analyst calls, while also making it clear it had no material impact on earnings.  

“The evidence could not be clearer – and the lack of any market reaction to AT&T's first quarter 2016 results confirms – there was no disclosure of material nonpublic information and no violation of Regulation FD,” AT&T continued. “The SEC's pursuit of this matter will not protect investors and instead will only serve to chill productive communications between companies and analysts, something the SEC was worried about when it adopted Regulation FD some 20 years ago. Unfortunately, this case will only create a climate of uncertainty among public companies and the analysts who cover them.”

The telco said it was looking forward to its “day in court.”

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.

Mike Farrell

Mike Farrell is senior content producer, finance for Multichannel News/B+C, covering finance, operations and M&A at cable operators and networks across the industry. He joined Multichannel News in September 1998 and has written about major deals and top players in the business ever since. He also writes the On The Money blog, offering deeper dives into a wide variety of topics including, retransmission consent, regional sports networks,and streaming video. In 2015 he won the Jesse H. Neal Award for Best Profile, an in-depth look at the Syfy Network’s Sharknado franchise and its impact on the industry.