A pedestrian walks in front of 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 widely sharing it.
The SEC claimed in a new complaint on Friday that AT&T learned in March 2016 that sales were lagging analysts’ estimates due to a bigger-than-expected dip in first-quarter smartphone sales. To avoid falling well below expectations, AT&T Investor Relations executives Christopher Womack, Michael Black and Kent Evans called analysts from about 20 companies to disclose internal sales data and how it would affect earnings.
Stocks of AT&T were slightly negative on Friday during out-of-hours trading.
The SEC alleged that internal documents made it clear that data was generally considered important to investors and could not be selectively disclosed under the Fair Disclosure Regulation (Regulation FD). That regulation states that material information should be publicly shared when shared with certain market professionals and analysts in order to promote a level playing field.
As a result of those calls, the SEC claimed, analysts have cut their earnings estimates. That meant that, according to the complaint, the consensus estimate was just below the number AT&T ultimately reported for the quarter.
AT&T would be more than $ 1 billion below its consensus revenue estimate for the quarter preceding the executives’ calls, the complaint said. The complaint alleges that AT & T’s CFO had commissioned the company’s Investor Relations department to hire analysts who had “overestimated” equipment estimates.
The SEC alleged that Black misrepresented the information about the private conversations with analysts as publicly available. The complaint alleges, “Black knew or recklessly ignored that he was misrepresenting the information he communicated to analysts because he followed AT & T’s calculation of consensus estimates – none of which matched the information he provided during the analyst phone calls.”
In a lengthy statement following the complaint, AT&T said the lawsuit “represents a significant departure from the SEC’s own long-standing Regulation FD enforcement policy and contradicts the testimony of anyone who participated in these discussions.”
The company went on to say that the information discussed in the phone calls with analysts “ pertained to the widely reported, industry-wide phase out of subsidy programs for new smartphone purchases and the impact of this trend on smartphone upgrades and equipment revenues. without device subsidies, customers have less often upgraded their smartphones, leading to a reduction in equipment revenues. “
AT&T also said it had already publicly stated that declining phone sales were not having a material impact on revenues.
The SEC’s pursuit of this issue will not protect investors and will instead only serve to calm productive communications between companies and analysts, something the SEC was concerned about when it passed Regulation FD some 20 years ago, AT&T said in the statement. “Unfortunately, this case will only create a climate of uncertainty among listed companies and the analysts handling it.”
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