The Securities and Exchange Commission has sued AT&T and three AT&T executives, saying the wireless carrier had leaked non-public information about falling phone sales to analysts to convince analysts. Analysts change revenue forecasts. The scheme helped AT&T “beat”; analyst revenue forecasts for the first quarter of 2016.
The complaint, filed Friday in the U.S. District Court for the Southern District of New York, claimed AT&T repeatedly violated Stock Exchange laws and FD regulations (for “fair disclosure”) in March and April 2016. Regulations “prohibit[s] Disclosures selected by the issuer of the non-public information to securities analysts, “the SEC lawsuit said, AT&T executives” disclosed AT & T’s internal smartphone sales and impact. Of that data against internal revenue metrics, although internal documents specifically tell the Investor Relations Officer that AT&T smartphone revenue and sales are the types of information that are generally considered It is’ materialistic ‘for AT&T investors, so it is forbidden to disclose exclusively under Regulation FD,’ the SEC said in a press release on the complaint.
AT&T claimed in a response Friday: “There was no public disclosure and no infringement” and said it would fight the lawsuit.[t] Four years to investigate the matter But no charges have been charged during the Trump administration. The case was filed about six weeks after President Biden appointed Democrat Allison Lee to the role of SEC chair. … will be an independent agency, a commission and a president. Appointed by the president
AT&T in early 2016 “learned that a more-than-expected drop in smartphone sales by AT&T would lower first-quarter 2016 revenue than analysts had expected.” The SEC said this was “a miss out on the company’s third quarter” and AT&T wanted to avoid that.
AT&T internal data shows the device upgrade rate, the rate at which current customers buy new smartphones. “It will be a record low for the company, with the result that AT & T’s total revenue is expected to drop more than $ 1 billion, well below the consensus estimate. That’s the average forecasts for all analysts covered by AT&T, ”the lawsuit said. AT&T executed plans to convince some analysts to lower their forecasts by providing personal information, the lawsuit said.
“In fear of missing out at the end of the quarter, AT&T Chief Financial Officer [John Stephens] Instruct AT&T’s IR department to run. Analysts who are still earning too much from the device ‘”The lawsuit said. AT&T’s director of investor relations then instructed three executives in the Investor Relations department” to speak privately with analysts, one by one, about their estimates, respectively, in their respective investigations. ‘Follow the analysts’, that is, encouraging analysts to lower individual estimates. “The lawsuit is aimed at encouraging analysts to cut estimates sufficiently to bring the unanimous revenue estimate down to the levels AT&T expected publicly reported, that AT&T will not miss revenue.”
SEC: AT&T leak has caused analysts to change estimates.
Three investor relations executives accused of fulfilling those orders were Christopher Va.Mckent Evans and Michael Black, who “It is primarily responsible for communicating with sales research analysts referring to AT&T,” the three executives, along with AT&T themselves, are named defendants in the case. The lawsuit said AT&T violated U.S. and SEC law, and that Womack, Evans and Black have assisted and supported AT&T violations.
The SEC case continues:
Between March 9 and April 26, 2016, Womack, Evans and Black called about 20 separate analyst firms and spoke with analysts to urge them to downgrade their revenue estimates and thereby reduce their earnings. Estimate the consensus to the level AT&T expects to report. During these calls, Womack, Evans and Black made a deliberate non-public information regarding AT&T results to date, based on the company and date of the call.Womack, Evans and Black disclosed their projected device upgrade rates. The amount of projected or actual wireless revenue. (Expressed as a percentage decrease compared to the first quarter of 2015) or both.
In some analyst calls for Black, he shows analysts that he is submitting publicly available consensus estimates.In fact, he is giving AT & T’s internal or actual projected results, did Black know? Carelessly ignored that he was distorting the information he was transmitting to analysts as he followed AT & T’s consensus estimate calculations, which had no information matching the information he provided in the call with analysts.
Public companies that deliberately disclose material information that is not disclosed to the public. “It must be disclosed to the public at the same time as the chosen disclosure,” the complaint said.
The three executives who were named defendants. “Knowing or recklessly ignoring the information they provide to analysts during these calls is both material and not public,” the indictment said. AT&T internal earnings and data pertaining to analysts specifically, and they do so with the expectation that analysts will work with the data to significantly reduce published estimates for investors.
The plan worked because “these phone analysts revised their earnings estimates immediately, resulting in a lower consensus revenue forecast for 1Q16 at AT&T when earnings were announced.” On April 26, 2016 in a Form 8-K filed with the Election Commissioner, ”the plaintiff said.
Womack is executive director of AT & T’s Investor Relations division, Evans served as assistant vice president and Black was director of finance, the lawsuit said.
AT&T said it was innocent.
AT&T said in a response to reporters: “The information discussed during discussions in March and April 2016 relates to a widely reported and industry-wide subsidy scheme, phasing out new smartphone purchases and the impact of this trend.” Per rate and device upgrades smartphone income “
AT&T said it was “made public.[d] This trend several times before analysts called “and” made it clear that falling phone sales had no significant impact on revenue. Analysts and news media often write about this trend, and investors understand that AT & T’s core business sells the connection. (Such as a wireless service plan) is not a device, and smartphone sales are not important to the company’s revenue. “
AT&T also said the SEC did not “cite a single witness related to these analysts’ calls, believed to have conveyed nonpublic information to them,” AT&T said. Evidence and “There was no market reaction to AT & T’s first quarter 2016 results,” confirmed that the information was not disclosed to the public, so there were no violations.
SEC seeks financial penalties
The fact that a company follows or misses an analyst estimate can affect its share price. When the results of public companies are announced, news agencies and analysts compare actual results with consensus estimates when the actual results are below analysts’ estimates, ie. Investors and markets often regard the results as negative news for issuers, “the SEC case noted.
The SEC is requesting a court order requiring AT&T and other named defendants to pay financial fines under U.S. law, allowing fines for each violation of up to $ 100,000 per 500,000 person. Dollars for each legal entity, or Gross profit amount for The defendant was a result of the breach. “The SEC also requested a permanent ban. “Restrain and enforce” the defendant against future violations of US and SEC laws, and to “Additional relief as the court deems appropriate and necessary for the benefit of investors”
The SEC now has two Democratic committees and two Republicans, Biden has nominated Democrat Gary Gensler to join the commission and become chairman. But Senate approval for Gensler is still pending.