WarnerMedia Parent AT&T Sued By SEC For Alleged Violation Of Fair Disclosure Reg In Conversations With Wall Street Analysts

WarnerMedia parent AT&T has been sued by the Securities and Exchange Commission for alleged violations of a regulation known as Reg FD that requires so-called fair disclosure of financial information.

The SEC civil suit against the telecom giant and three of its investor relations executives claims they selectively disclosed material nonpublic information to a group of Wall Street analysts in 2016 after the company realized its first quarter revenue would fall short of estimates following a steeper than expected dip in smartphone sales.

AT&T called the allegations “meritless” and said, “We look forward to having our day in court.”

The complaint alleges that three AT&T investor relations executives made private, one-on-one calls to analysts at twenty Wall Street firms disclosing the shortfall – information that is considered material under Regulation FD (for fair disclosure). The rule basically prohibits public companies from selective disclosure of anything material. Companies in other words must provide information widely to everyone or to no one in a way that keeps all investors big and small in the loop. The rule, from 2000, has reshaped how public companies conduct conference calls, investor meetings and communicate with analysts and investors.

The SEC suit alleges that as a result of what they were told, the analysts substantially reduced their revenue forecasts leading to the overall consensus revenue estimate for the quarter falling to just below the level that AT&T ultimately reported to the public – in other words the company ended up beating expectations.

“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,” said Richard R. Best, Director of the SEC’s New York Regional Office. “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.”

AT&T said the lawsuit “represents a significant departure from the SEC’s own long-standing Regulation FD enforcement policy and is inconsistent with the testimony of all who participated in these conversations.” It said the issues with smartphone sales were well known and provided a fact sheet including news clips to back that up.

The suit “will not protect investors and instead will only serve to chill productive communications between companies and analysts, something the SEC was worried about when it adopted Regulation FD some 20 years ago. Unfortunately, this case will only create a climate of uncertainty among public companies and the analysts who cover them,” the company said.

The SEC’s complaint, filed in federal district court in Manhattan dated March 5, seeks permanent injunctive relief and civil monetary penalties against each defendant.