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

A pedestrian walks outside an AT&T location in New York.

Scott Mlyn | CNBC

The Securities and Exchange Commission accused AT&T and three of its executives of selectively giving some Wall Street analysts access to non-public information without disseminating it widely.

The SEC alleged in a new complaint on Friday that AT&T learned in March 2016 that revenue would lag behind analyst estimates due to a stronger-than-expected decline in smartphone sales in the first quarter. To avoid falling significantly below expectations, executives at AT&T Investor Relations, Christopher Womack, Michael Black and Kent Evans, called analysts at around 20 companies to reveal internal sales data and its impact on sales.

The AT&T share was slightly negative on Friday after close of trading.

The SEC alleged internal documents made it clear that data was generally considered material to investors and could not be selectively disclosed under the Fair Disclosure Regulation (Regulation FD). This regulation states that material 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 these calls, according to the SEC, analysts lowered their sales estimates. This meant the consensus estimate, according to the complaint, was just below the number AT&T ultimately reported for the quarter.

AT&T should fall more than $ 1 billion below its consensus revenue estimate for the quarter prior to executive calls, according to the complaint. The complaint alleges that AT & T’s CFO directed the company’s investor relations department to “work” analysts whose equipment estimates were “too high”.

The SEC alleged that Black misrepresented the information about the private calls to analysts as publicly available. The complaint alleges, “Black knew or recklessly ignored that he was misrepresenting the information he was providing to analysts because of tracking AT & T’s calculation of consensus estimates – none of which matched the information he came up with reported the calls with analysts. “

In a detailed statement following the complaint, AT&T said the lawsuit “represents a significant departure from the SEC’s longstanding regulatory enforcement policy and is inconsistent with what everyone who participated in those talks has said.”

The company went on to say that the information discussed in the phone calls with analysts was “the widespread, industry-wide phasing out of new smartphone purchase subsidy programs, and the impact that trend is having on smartphone upgrade rates and device revenue. Without device subsidies, customers upgraded theirs Smartphones are used less often, which has resulted in a decrease in device revenue. “

AT&T also said it had already publicly stated that declining phone sales would not have a material impact on earnings.

“The SEC’s pursuit of this matter will not protect investors and instead will only serve to cool productive communications between companies and analysts, which the SEC was concerned about when it passed the FD regulation some 20 years ago,” AT said & T in the declaration. “Unfortunately, this case will only create a climate of uncertainty among public companies and the analysts who cover them.”

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