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SEC charges AT&T and investor relations employees over calls to analysts

US securities regulators have charged AT&T and three members of its investor relations team with selectively disclosing information to analysts covering the US telecoms company to avoid falling short of Wall Street’s forecasts. 

The three executives made private one-to-one calls to analysts at about 20 different research groups, the Securities and Exchange Commission alleged on Friday, after discovering in March 2016 that falling smartphone sales would leave AT&T’s revenue more than $1bn short of consensus estimates for the quarter. 

AT&T’s chief financial officer instructed its investor relations department to “work the analysts who still have equipment revenue too high”, the SEC’s complaint alleges.

As a result, the SEC claimed, the analysts cut their forecasts, lowering Wall Street’s consensus revenue estimate to just below the level that AT&T ultimately reported.

AT&T pushed back against the allegations, challenging the regulator’s claim that it had shared material non-public information and warning that the charges would “only serve to chill productive communications between companies and analysts”.

“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 non-public information was conveyed to them,” the company said in a statement.

Investors often punish the stocks of companies whose financial results miss estimates but the financial disclosure regulation known as Reg FD, introduced in 2000, bars corporate officials from trying to massage expectations through selective briefings. Instead, the SEC insists that material information must be disclosed to all investors publicly and simultaneously.

The SEC’s complaint, filed in federal district court in Manhattan, alleges that the AT&T investor relations executives disclosed internal smartphone sales data, despite knowing that such figures were considered “material” to investors, and therefore should not be selectively disclosed.

AT&T contested the regulator’s claims, saying that the “mid-level” investor relations executives had only discussed a “widely reported” industry-wide trend to phase out subsidies for new smartphone purchases — a trend which the company had discussed publicly several times before the calls to analysts.

Investors, it added, understood at that point that smartphone sales were “immaterial” to A&T’s earnings. 

The SEC said it was seeking permanent injunctive relief and civil monetary penalties against the three investor relations executives — Christopher Womack, Michael Black, and Kent Evans.

AT&T said it looked forward to proving in court that the SEC’s allegations were “meritless”. 

“Unfortunately, this case will only create a climate of uncertainty among public companies and the analysts who cover them,” it argued.

The SEC has taken only infrequent enforcement actions relating to Reg FD in recent years. Its 2019 settlement of charges with TherapeuticsMD, a small pharmaceutical company, was its first action focused solely on the financial disclosure rules in six years.

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