As part of the settlement, three AT&T executives agreed to pay $25,000 each resulting from related charges the SEC brought last year.
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 consensus revenue expectations for the third consecutive quarter, AT&T investor relations executives Christopher Womack, Michael Black, and Kent Evans held private, one-on-one phone calls with approximately 20 sell-side analyst 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, even though, among other things, 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 SEC stated.
The SEC’s complaint further alleges that the nonpublic information provided on these private calls caused analysts to substantially reduce their revenue forecasts, allowing AT&T ultimately to beat the overall consensus revenue estimate when AT&T reported its results to the public in April 2016.
“The actions allegedly taken by AT&T executives to avoid falling short of analysts’ projections are precisely the type of conduct Regulation FD was designed to prevent,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. “Compliance with Regulation FD ensures that issuers publicly disclose material information to the entire market and not just to select analysts.”
The defendants, without admitting or denying the allegations in the complaint, consented to final judgments permanently enjoining them from violating, or aiding and abetting violations of, Regulation FD and Section 13(a) of the Securities Exchange Act of 1934, in addition to paying the above-referenced penalties.
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.