How Much Trouble Is AT&T in After This SEC Investigation?

The U.S. Securities and Exchange Commission (SEC) recently came down on AT&T Inc. (NYSE: T | T Price Prediction) and its investor relations department in particular. The agency did not disclose what monetary penalties it was seeking in the complaint.

Essentially, the SEC charged the telecom giant with repeatedly violating Regulation FD and three of its investor relations executives with aiding and abetting AT&T’s violations by selectively disclosing material nonpublic information to research analysts.

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 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 roughly 20 separate firms.

On these calls, the aforementioned executives allegedly disclosed AT&T’s internal smartphone sales data and what the impact would be on internal revenue metrics, despite the fact that 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. As such, the data was prohibited from selective disclosure under Regulation FD.

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The complaint further alleges that as a result of what they were told on these calls, the analysts substantially reduced their revenue forecasts, leading to the overall consensus revenue estimate falling to just below the level that AT&T ultimately reported to the public on April 26, 2016.

Richard R. Best, director of the SEC’s New York regional office, commented:

Regulation FD levels the playing field by requiring that issuers disclosing material information do so broadly to the investing public, not just to select analysts. AT&T’s alleged selective disclosure of material information in private phone calls with analysts is precisely the type of conduct Regulation FD was designed to prevent.

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