AT&T executives accused of leaking sales data to financial firms

(Image: AT&T/Graphic: The Desk)

Federal regulators this week accused AT&T and three company executives of improperly disclosing internal sales data to more than a dozen financial firms.

This week, the Securities and Exchange Commission accused the three executives of leaking material sales information to around 20 financial firms in early 2016.

In March 2016, analysts at AT&T noted a decline in smartphone sales, later forecasting that decline in sales would cause its revenue to fall short of forecasts that were issued earlier in the year. If true, it would have been the third straight quarter that AT&T missed revenue estimates, the SEC alleged.

Anticipating a missed earnings call, three AT&T executives — Michael Black, Kent Evans and Christopher Womack — allegedly held private conversations with around 20 financial firms in which they disclosed internal smartphone sales data and how it might impact their revenue.

The calls were made and the data disclosed despite the fact that internal data warned that the information was “material” to AT&T’s investors and thus illegal to selectively disclose, the SEC said.

As a result of the calls, some analysts reduced their earnings expectations. AT&T still fell short of expectations, but the impact was less severe it otherwise would have been if those calls had not been placed by the three executives, the SEC alleged.

“[Fair disclosure regulations level] the playing field by requiring that issuers disclosing material information do so broadly to the investing public, not just to select analysts,” Richard Best, the director of the SEC’s New York regional office, said in a statement. “”AT&T’s alleged selective disclosure of material information in private phone calls with analysts is precisely the type of conduct [fair disclosure regulations were] designed to prevent.”

AT&T and the three executives have not been accused of criminal wrongdoing. Instead, the SEC is seeking a civil court injunction and monetary penalties.

In a statement of its own, AT&T denied any wrongdoing and said the SEC was misstating the nature of the calls made by the executives. The phone company said the calls relayed information about how the industry as a whole was phasing out the use of subsidy programs to help sell smartphones — most carriers, including AT&T, now require customers to purchase or finance phones at full retail value, with few exceptions — and how the decision to move away from handset subsidies would cut into sales.

“Not surprisingly, without device subsidies, customers upgraded their smartphones less frequently, leading to a reduction in equipment revenue,” an AT&T spokesperson said, adding that these types of disclosures had been made in the past and were not material to their earnings report.

“The evidence could not be clearer – and the lack of any market reaction to AT&T’s first quarter 2016 results confirms – there was no disclosure of material nonpublic information and no violation of [fair disclosure regulations],” the phone company spokesperson affirmed.

AT&T says it will remedy the issue in court.