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On March 5, 2021, the Securities and Exchange Commission charged AT&T, Inc. 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.

The enforcement action demonstrates how efforts to talk down analyst estimates can potentially violate Regulation FD.

According to the SEC’s complaint, in March and April of 2016, Defendant AT&T, aided and abetted by Defendants Womack, Evans, and Black, executives in its Investor Relations Department, repeatedly violated Regulation FD.  Regulation FD is a Commission rule that prohibits selective disclosures by issuers of material nonpublic information to securities analysts and others.  The core Regulation FD violation alleged by the SEC is that AT&T and other defendants disclosed AT&T’s projected and actual financial results during phone calls Womack, Evans, and Black held with equity stock analysts from approximately 20 Wall Street firms on a one-on-one basis.

According to the SEC, in early March 2016, AT&T and its executives, including Womack, Evans, and Black, learned that a steeper-than-expected decline in smartphone sales by AT&T would cause its revenue for the first quarter of 2016 (“1Q16”) to fall short of analysts’ estimates. In fact, AT&T’s “equipment upgrade rate” (i.e., the rate at which existing customers purchased new smartphones) would be a record low for the company, with the result that AT&T’s consolidated gross revenue was expected to fall more than $1 billion below the consensus estimate—that is, the average of the forecasts for all analysts covering AT&T.

Fearful of a revenue miss at the end of the quarter, AT&T’s Chief Financial Officer instructed AT&T’s IR Department to “work[] the analysts who still have equipment revenue too high.”

In turn, the Director of Investor Relations (“IR Director”) instructed Womack, Evans, and Black to speak to analysts privately on a one-by-one basis about their estimates in order to “walk the analysts down”—i.e., induce analysts to reduce their individual estimates. The goal, according to the SEC, was to induce enough analysts to lower their estimates so that the consensus revenue estimate would fall to the level that AT&T expected to report to the public—i.e., AT&T would not have a revenue miss, which would have been the company’s third consecutive quarterly miss.

Between March 9 and April 26, 2016, Womack, Evans, and Black called approximately 20 separate analyst firms and spoke to analysts in order to induce them to lower their revenue estimate and thereby reduce the consensus estimate to the level that AT&T expected to report. During these calls, Womack, Evans, and Black intentionally disclosed material nonpublic information regarding AT&T’s results to date. Depending on the firm and the date of the call, Womack, Evans, and Black disclosed AT&T’s projected or actual equipment upgrade rate, its projected or actual wireless equipment revenue amount (presented as a percentage decrease compared with the first quarter of 2015), or both.

On some of Black’s calls to analysts, he represented to the analysts that he was conveying publicly available consensus estimates, when in fact he was providing AT&T’s own internal projected or actual results. Black knew or recklessly disregarded that he was misrepresenting the information he was conveying to analysts because he tracked AT&T’s calculation of consensus estimates—none of which matched the information he provided on the calls with analysts.

The SEC alleges Womack, Evans, and Black knew or recklessly disregarded that the information that they provided to the analysts during these calls was both material and nonpublic. Among other things, they knew that they were prohibited from selectively disclosing AT&T’s internal revenue and related data to analysts, and they did so with the expectation that the analysts would act on the information to substantially reduce the estimates they published for investors. Their knowing or reckless conduct was also evidenced by, for example, Black’s efforts to disguise the internal information he was presenting as “consensus,” the fact that the analysts’ initial estimates deviated so far from AT&T’s projected and actual results that the group needed to call approximately 20 separate firms to bring the consensus down to where AT&T could meet it, and that they presented the equipment upgrade rate as a “record low” during some of these calls.

Finally, the SEC alleges the analyst firms that received these calls promptly adjusted their revenue estimates, resulting in a reduced consensus revenue forecast for 1Q16 that AT&T beat when it announced earnings on April 26, 2016, in a Form 8-K filed with the SEC.

No Court has found any of the defendants has violated the law, and the allegations in the SEC’s complaint are as of yet unproven.

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