On Friday afternoon, the SEC announced that it had filed a complaint against AT&T and three of its IR execs for violations of Regulation Fair Disclosure. This is the first Reg FD enforcement action that we’ve seen in a couple of years – the Enforcement Division does indeed seem to be “powering up” and wasting no time in bringing litigation.
The charges show that the SEC views talking down analyst estimates as a problem under Reg FD. One of the most surprising points in the SEC’s announcement is that the IR execs allegedly disclosed info that the company’s internal policies specifically said could be “material.” Here’s an excerpt:
According to the SEC’s complaint, AT&T learned in March 2016 that a steeper-than-expected decline in its first quarter smartphone sales would cause AT&T’s revenue to fall short of analysts’ estimates for the quarter. The complaint alleges that to avoid falling short of the consensus revenue estimate for the third consecutive quarter, AT&T Investor Relations executives Christopher Womack, Michael Black, and Kent Evans made private, one-on-one phone calls to analysts at approximately 20 separate firms.
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 complaint further alleges that as a result of what they were told on these calls, the analysts substantially reduced their revenue forecasts, leading to the overall consensus revenue estimate falling to just below the level that AT&T ultimately reported to the public on April 26, 2016.
While we don’t know yet whether this claim will end up being settled and what type of penalties (if any) AT&T will face (at this point, the SEC’s allegations are unproven), the fact that the company is charged in the complaint is a reminder that simply having a policy in place isn’t enough to avoid litigation. Check out our 135-page “Reg FD” Handbook if you need to jump-start your compliance efforts.
-Liz Dunshee, TheCorporateCounsel.net March 8, 2021
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