SEC Alleges AT&T, 3 Employees Tipped Off Wall Street

WASHINGTON—Three employees of

AT&T Inc.

T 2.01%

selectively shared information about smartphone sales in 2016 to analysts who then lowered their revenue forecasts, allowing the telecom company to beat earnings estimates, securities regulators alleged Friday.

The Securities and Exchange Commission said the discussions of material information violated a rule known as Regulation FD, which requires public companies to reveal market-moving information to everyone at once. The SEC sued AT&T and the three investor-relations executives in Manhattan federal court.

AT&T called the allegations meritless and issued a statement vowing to challenge the charges.

“The SEC’s pursuit of this matter 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,” the company wrote. “Unfortunately, this case will only create a climate of uncertainty among public companies and the analysts who cover them.”

In 2016, The Wall Street Journal reported that AT&T investor-relations employees called analysts before the company reported quarterly results that April and encouraged analysts to look back at comments about smartphone upgrades made by the company’s finance chief in early March.

Analysts at three research firms cut their sales estimates by an average of about $1 billion in the week before AT&T issued first-quarter numbers, the Journal reported. The average estimate of all 22 firms following AT&T fell $323 million in three weeks. AT&T wound up reporting $40.54 billion in quarterly revenue, beating the lowered target by $76 million.

The SEC’s civil lawsuit seeks monetary penalties and alleges that AT&T violated Regulation FD and public-company reporting requirements. The three employees—

Christopher Womack,

Michael Black,


Kent Evans

—were charged with aiding and abetting the violations.

Mr. Womack, 54 years old, is an executive director in AT&T’s investor-relations department, the SEC said in its court complaint. Mr. Evans, 64, is an associate vice president in the same department. Mr. Black, 56, is a finance director, the SEC said. Messrs. Womack and Black were principally responsible for communicating with sell-side analysis for the company.

Attorneys for Messrs. Womack, Evans, and Black didn’t immediately return messages seeking comment.

The men held private, one-on-one phone calls with about 20 analysts in March and April 2016, sharing with them information about customers’ upgrade rate and wireless-equipment revenue during the first quarter of the year, the SEC alleges.

Cellphone carriers at the time had embraced a sales model that let subscribers pay off their smartphones through installments instead of getting free devices subsidized by more expensive rate plans. The shift affected carriers’ reported revenue from device sales more than it influenced profitability.

AT&T’s internal compliance materials said that revenue and sales figures related to smartphones were material and covered by Regulation FD, the SEC’s court complaint says.

AT&T said smartphone sales were immaterial to its earnings because it is in the business of providing wireless service, not selling devices.

Analysts interviewed by the SEC as part of the investigation told regulators they didn’t believe the metrics were material, and thus didn’t report the communication from AT&T to their own compliance experts, a person familiar with the matter said.

The SEC passed Regulation FD in 2000 to address concerns about companies disclosing market-moving news to select Wall Street analysts and investors, contributing to an environment that enabled insider trading.

Write to Dave Michaels at [email protected] and Drew FitzGerald at [email protected]

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