The Securities and Exchange Commission has charged AT&T and three of its investor relations executives with selectively releasing material financial data in 2016.
The charges accuse the company of violating federal Regulation FD, which requires that companies disclosing material information must do so broadly to the investing public rather than just to select analysts, and reporting provisions of the Securities Exchange Act of 1934.
The SEC charges that 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.
During the calls, the executives allegedly discussed internal smartphone sales data and the impact of that data on internal revenue metrics, even though 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.
The complaint also alleges that because of what they were told on the calls, the analysts substantially reduced their revenue forecasts, leading to an overall consensus revenue estimate that fell just below the level that AT&T ultimately reported to the public on April 26, 2016.
AT&T denies the allegations.
In a statement, the company pointed out that, after a four-year investigation, the SEC has still not cited any witnesses involved in any of the analyst calls who believes that material nonpublic information was conveyed to them.
“The information discussed during these March and April 2016 conversations concerned the widely reported, industrywide phase-out of subsidy programs for new smartphone purchases and the impact of this trend on smartphone upgrade rates and equipment revenue,” the company argues. “Not surprisingly, without device subsidies, customers upgraded their smartphones less frequently, leading to a reduction in equipment revenue.”
“Not only did AT&T publicly disclose this trend on multiple occasions before the analyst calls in question, but AT&T also made clear that the declining phone sales had no material impact on its earnings… The evidence could not be clearer — and the lack of any market reaction to AT&T's first quarter 2016 results confirms—there was no disclosure of material nonpublic information and no violation of Regulation FD.”