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SEC Charges AT&T With Repeated Violations of Selective Disclosure Under Regulation FD

AT&T investor relations officials called analysts to warn them of a revenue shortfall so that their published estimates would be lowered ahead of the company's earnings announcement.

The US Securities and Exchange Commission charged AT&T Inc (NYSE: ) with selectively disclosing nonpublic information in violation of Regulation FD to research analysts before the telecommunications giant released quarterly results. 

In a complaint filed Friday in federal district court in Manhattan, the US financial regulator alleged that AT&T repeatedly violated Regulation FD (Fair Disclosure) and that three Investor Relations executives aided and abetted the company's violations by disclosing material nonpublic information to research analysts.

According to the SEC, AT&T learned in March 2016 that a steeper-than-expected decline in smartphone sales would cause the company to miss Wall Street estimates for the first quarter. 

The SEC alleged that, to prevent the revenue miss from happening, AT&T’s chief financial officer directed the company’s investor relations department to “work” analysts whose quarterly equipment revenue estimates were too high, with the objective of encouraging those analysts to lower their estimates ahead of the earnings announcement.

Investor relations executives Michael Black, Kent Evans and Christopher Womack called analysts at about 20 firms, sharing internal sales data and how it would impact revenue metrics.

As a result of those phone calls, analysts cut their revenue forecasts and, when AT&T posted its first quarter results in April 2016, it was seen to beat quarterly revenue expectations instead of missing them as it would have done without the revisions.

The early warning to analysts helped AT&T avoid missing Wall Street estimates for a third consecutive quarter, the SEC said.

AT&T ended up reporting $40.5 billion in revenue for the quarter, barely beating the revised consensus analyst estimates by less than $100 million, according to the complaint. 

The SEC said the information was material to investors and therefore could not be selectively disclosed under Regulation FD. By law, material information must be shared publicly when provided to certain market professionals and analysts.

In a press release, Richard Best, director of the SEC’s New York regional office, 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.”

Best added, “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.”

In a statement Friday, AT&T disputed the SEC’s allegations in a statement, claiming that “there was no disclosure of material nonpublic information” and that it will fight the lawsuit. 

“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,” the company said.

AT&T also said it has “made clear that the declining phone sales had no material impact on its earnings."

“Analysts and the news media frequently wrote about this trend and investors understood that AT&T’s core business was selling connectivity (i.e., wireless service plans), not devices, and that smartphone sales were immaterial to the company’s earnings,” the company said.


Source: Equities News