SEC accuses AT&T of selectively sharing investment information with analysts

The Securities and Exchange Commission has accused AT&T and three of its executives of giving certain Wall Street analysts selective access to non-public information without sharing it widely.

The SEC alleged in a new complaint on Friday that in March 2016 AT&T learned that its revenues would be lower than analysts’ estimates because of a larger than expected drop in smartphone sales in the first quarter. To avoid looking far below expectations, the SEC alleged that AT&T investor relations officials Christopher Womack, Michael Black and Kent Evans called analysts at around 20 companies to disclose the information to them. internal sales data and its impact on revenue.

AT&T shares were slightly negative on Friday after-hours.

The SEC said internal documents made it clear that the data was generally considered important to investors and could not be selectively disclosed under the Fair Disclosure Regulation (FD Regulation). This regulation states that important information must be shared publicly when shared with certain market professionals and analysts in order to promote a level playing field.

As a result of the calls, the SEC said, analysts lowered their earnings estimates. That meant the consensus estimate ended up just below the number finally reported by AT&T for the quarter, according to the complaint.

According to the complaint, AT&T is expected to fall more than $ 1 billion below the consensus revenue estimate for the quarter before the executives’ calls. The complaint alleges that AT & T’s chief financial officer asked the company’s investor relations department to “work” analysts whose equipment estimates were “too high.”

The SEC claimed that Black had misrepresented information on private calls with analysts as publicly available. The complaint alleges that “Black knew or recklessly ignored that he was misrepresenting the information he was passing on to analysts because he was following AT & T’s calculation of consensus estimates – none of which matched the information he provided at the time. calls with analysts. “

In a lengthy statement following the complaint, AT&T said the lawsuit “represents a significant departure from the SEC’s long-standing policy of enforcement of FD Rule and is inconsistent with the testimony of all who have participated in these conversations.

The company added that the information discussed during calls with analysts “concerned the phase-out and widely reported industry-wide subsidy programs for new smartphone purchases and the impact of this trend on upgrade rates. smartphones and equipment revenues. Unsurprisingly, without device subsidies, customers updated their smartphones less frequently, resulting in reduced equipment revenues. “

AT&T also said it has previously said publicly that the decline in phone sales does not have a significant impact on profits.

“The SEC’s pursuit of this issue will not protect investors and will only serve to cool productive communications between companies and analysts, which the SEC worried about when it passed the FD regulation 20 years ago.” AT&T said in the statement. “Unfortunately, this case will only create a climate of uncertainty among state-owned companies and the analysts who cover them.”

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