In March 2021 the SEC charged AT&T and three of its executives with repeatedly violating Regulation FD and Section 13(a) of the Securities Exchange Act of 1934.
According to the SEC charges, in March 2016 AT&T and its executives realised that the company’s revenues would fall significantly short of analyst expectations. The shortfall was a real concern to executives because it would constitute “the company’s third consecutive quarterly miss”, this time to the tune of $1bn. An earnings miss of this size would usually lead to declines in stock price and potentially analyst downgrades.
AT&T’s financial officer allegedly instructed the Investor Relations department at AT&T to “work the analysts”, in other words to induce them to lower their earnings estimates. And, according to the SEC allegations, this is what the three company executives, Christopher Womack, Kent Evans and Michael Black, did, calling approximately 20 different analyst firms.
Internal information
During those calls material non-public information such as the upgrade rates and wireless revenue amounts was purportedly disclosed to analysts. Black also allegedly misrepresented the AT&T internal information that he was sharing as “publicly available consensus estimates”. The SEC cited this as additional evidence of the fact that all three of the executives “knew that they were prohibited from selectively disclosing” this information.
The team apparently did their job well. In April 2016, one day before the earnings report by AT&T, “the last of the approximately 20 analyst revenue reductions brought the consensus estimate just below what AT&T knew it would ultimately report” and AT&T’s reported revenues for the quarter beat the “consensus revenue estimate by less than $100m”.
Gurbir S Grewal, Director of the SEC’s Division of Enforcement, said that the actions allegedly taken “to avoid falling short of analysts’ projections are precisely the type of conduct Regulation FD was designed to prevent”.
AT&T and the executives have now consented to the final judgements and penalties without admitting or denying the allegations.
