On March 5, the Securities Exchange Commission (SEC) announced that it charged AT&T, Inc. and its investor relations executives, Christopher Womack, Michael Black, and Kent Evans, with multiple violations of an agency fair disclosure rule after the executives reportedly held private calls with industry analysts during which they selectively disclosed financial results. The Southern District of New York filing explained that the goal of the SEC rule at issue, Regulation FD (fair disclosure), is to buoy investor confidence by prohibiting selective disclosures like those made by AT&T.
The SEC’s complaint purported that in March 2016, AT&T learned that a greater than expected decline in first quarter smartphone sales would cause the company’s revenue to fall more than $1 billion below the consensus estimate, the average derived from all analysts’ forecasts. In order to avoid a third consecutive quarter revenue miss, officers within AT&T directed the investor relations defendants to speak to analysts with the goal of “induc(ing) enough analysts to lower their estimates so that the consensus revenue estimate would fall to the level that AT&T expected to report to the public.”
Subsequently, the complaint stated, Womack, Black, and Evans disclosed material non-public information regarding AT&T’s results to date, like projected or actual equipment upgrade rates and projected or actual wireless equipment revenue. The complaint alleged that by disclosing this information with the expectation that the analysts would reduce the estimates they publish for investors, the individual defendants acted with reckless disregard for Regulation FD. Accordingly, the SEC requested the assessment of civil penalties and injunctive relief, arguing that unless permanently enjoined, the defendants will again engage in fair disclosure violations.