Economy

A lawsuit by AT&T says AT&T violated US law in a scheme to exceed revenue projections

A lawsuit by AT&T says AT&T violated US law in a scheme to exceed revenue projections
Zoom in / The AT&T logo and stock price are displayed on a screen on the New York Stock Exchange on Tuesday, January 22, 2019.

Its Securities and Exchange Commission lawsuit AT&T and three AT&T executives said the wireless carrier had leaked non-public data about declining phone sales to analysts in order to persuade analysts to change their revenue forecasts. The Securities and Exchange Commission said the scheme helped AT&T to “beat” analyst expectations for revenue in the first quarter of 2016.

The Complaint, Which was filed Friday in the U.S. District Court for the Southern District of New York, alleges that AT&T has repeatedly violated the Securities and Exchange Act and FD Regulation (for “Fair disclosure“) In March and April of 2016. The regulation prohibits[s] The selective lawsuit was revealed by the issuers of the material undisclosed information to the securities analysts. “ AT&T executives revealed AT&T’s internal smartphone sales data and the impact that data had on internal revenue metrics, despite the fact that internal documents specifically informed investor relations personnel that AT&T smartphone revenue and sales were the types of information that It is generally considered “material” to AT&T investors and is therefore prohibited from selective disclosure under the FD Regulation. ” Press release About her complaint.

AT & T claimed in prof Response Friday that “there was no disclosure of essential information that is not public or infringement,” and she said that she would oppose the lawsuit. AT&T also said that the Securities and Exchange Commission (SEC) is “spinning” ……………………………… ………………………………………….. ………………………………………….. ………………………………………….. ………………………………………….. …………………………………….[t] Four years of investigation into this matter. ”But no charges were filed during the Trump administration. The lawsuit was filed about six weeks after President Biden appointed Democrat Alison Lee. Acting chair To the Securities and Exchange Commission; Although the SEC is an independent agency, its commissioners and its head are appointed by the president.

The SEC’s complaint said AT&T in early 2016 “learned that a more severe than expected drop in smartphone sales by AT&T would cause its first-quarter 2016 revenue to fall below analyst estimates”. This was “the company’s third consecutive quarterly loss”, and AT&T wanted to avoid it.

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Internal data of AT&T showed that the equipment upgrade rate, the rate at which existing customers buy new smartphones, “would be a record low for the company, and as a result, AT&T’s total consolidated revenue was expected to drop by more than $ 1 billion. Below the consensus estimate, the lawsuit said – meaning the average forecast for all analysts covering AT&T. The lawsuit said AT&T had implemented a plan to persuade some analysts to lower their forecasts by giving them information privately.

“In fear of losing revenue at the end of the quarter, AT&T’s CFO [John Stephens] Instructed AT&T’s Foreign Relations Department to act. ” ” ([] The lawsuit said analysts who still have returns from equipment are too high. ”Then AT&T’s director of investor relations instructed three executives in its investor relations division“ to speak to analysts privately on a one-by-one basis about their estimates in order to “push analysts to” Bottom – meaning urging analysts to reduce their individual estimates, “the lawsuit said. The goal was to get enough analysts to lower their estimates so that aggregate revenue estimates drop to the level AT&T expected to report to the public – that is, AT&T will have no income to miss. “

SEC: The AT&T leaks have led analysts to change estimates

The three investor relations executives who allegedly carried out these orders were Christopher Womack, Kent Evans and Michael Black, who “were primarily responsible for communicating with the sell-side research analysts who covered AT&T.” These three executives, along with AT&T itself, are the defendants named in the lawsuit. The lawsuit said that AT&T violated US law and SEC rules and that Womack, Evans, and Black aided and abetted AT&T violations.

The authority’s lawsuit continued:

Between March 9 and April 26, 2016, Womack, Evans and Black contacted nearly 20 separate analyst firms and spoke to analysts in order to urge them to lower their revenue estimate and thus reduce the consensus estimate to the level AT&T expected to report. During these calls, Womack, Evans and Black have intentionally disclosed material non-public information related to AT&T results to date. Depending on the company and the date of the call, Womack, Evans, and Black revealed AT&T’s expected or actual equipment upgrade rate, the amount of projected or actual wireless equipment revenue (provided as a percentage compared to Q1 2015), or both.

In some of Black’s calls to analysts, he explained to analysts that he was conveying publicly available consensus estimates, when in reality he was presenting actual or anticipated internal results to AT&T. Black knew or recklessly ignored that he was misrepresenting the information he was passing on to analysts because he was tracking AT&T accounts. T was to consensus estimates – and none matched the information he provided in calls with analysts.

The complaint said that public companies that intentionally selectively disclose essential undisclosed information “must make public disclosure in conjunction with selective disclosure.”

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The complaint said all three defendant executives “learned or recklessly ignored that the information they provided to the analysts during these calls was material and not public.” “Among other things, they knew that they were prevented from selectively disclosing AT&T’s internal revenue and related data to analysts, and they did so with the expectation that analysts would act on the information to significantly reduce the estimates they published to investors.”

The plan worked, as “the analyst firms that received these calls promptly revised their revenue estimates, reducing projected revenue projections for the first quarter of 2016.” AT&T won When it announced its earnings on April 26, 2016, Form 8-K was filed with the Commission, ”the lawsuit said.

The lawsuit said Womack is executive director of AT&T’s investor relations division, Evans is associate vice president, and Black is CFO.

AT&T says it is innocent

In response to reporters, AT&T said, “The information discussed during the March and April 2016 talks relates to the industry-wide phase-out of support programs for the purchase of new smartphones and the impact of this trend on smartphone upgrade rates and equipment. Revenues.”

AT&T said it was “publicly disclosing[d] This trend was on multiple occasions before the analyst called and explained that the drop in phone sales had not had a material impact on his earnings. Analysts and news media often wrote about this trend and investors realized that AT&T’s core business was selling connectivity (ie wireless service plans), not devices, and that smartphone sales were not important to the company’s profits. “

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AT&T also said that the Securities and Exchange Commission has not “cited a single witness involved in any of these analysts’ calls who believe that material undisclosed information has been passed on to them.” AT&T said the evidence and “no market reaction to AT & T’s results for the first quarter of 2016” confirm that there has been no disclosure of material undisclosed information and therefore no breach.

The Saudi Electricity Company is requesting fines

Whether a company meets or misses analysts’ estimates can affect its share price. When the results of public companies ’earnings are announced,“ analysts and news outlets compare the actual results with the analysts ’estimates. And when the actual results are lower than the analysts’ estimates, that is, “lack of consensus”, investors and markets usually treat these results as negative news about the source, The Securities and Exchange Commission noted the lawsuit.

The Securities and Exchange Commission (SEC) requested a court order requiring AT&T and other defendants to pay fines under a United States law Fines are allowed for each violation of up to $ 100,000 per person, or $ 500,000 per legal entity, or “the total amount of financial gain for this defendant as a result of the violation.” The Securities and Exchange Commission also called for the issuance of a permanent judicial order to “restrict and prohibit” defendants from future violations of United States law and relevant SEC rules, and “more fairness as this court deems appropriate and necessary for the benefit of investors.”

The Securities and Exchange Commission currently has two Democratic and two Republican commissioners. Biden Nominate Democrat Gary Gensler joins the committee and becomes president, but Senate approval for Gensler is still pending.

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