On March 5, 2021, the Securities and Exchange Commission (“SEC”) filed a lawsuit in federal court against AT&T, Inc. (“AT&T”) for violating Regulation FD, and also charged three of AT&T’s Investor Relations executives with aiding and abetting this violation. Reg FD (which stands for “Fair Disclosure”) prohibits companies from selectively disclosing material nonpublic information to certain categories of individuals, including analysts and investors, and is intended to promote full and fair disclosure of such information in order to ensure that all investors have equal access to potential market-moving information.
The SEC alleges that, fearing a third consecutive quarterly revenue miss, AT&T’s CFO (whom the SEC did not name as a defendant) instructed AT&T’s Investor Relations team to make calls to “work the analysts who still have equipment revenue too high” for AT&T’s first quarter 2016 earnings estimates. On these calls with approximately twenty analysts, which occurred in March and April 2016, the individual defendants allegedly disclosed AT&T’s internal smartphone sales data and the impact of that data on internal revenue metrics, even though internal documents informed Investor Relations that this kind of information was considered “material” and was therefore prohibited from selective disclosure under Reg FD.
The SEC claims that the goal of the calls was to induce enough analysts to lower their estimates that the consensus revenue estimate would fall to the level that AT&T expected to report to the public, thereby avoiding a revenue miss. After the calls, the analysts substantially reduced their revenue forecasts, leading to the overall consensus revenue estimate falling to just below the level that AT&T ultimately reported to the public.
Reg FD enforcement actions are somewhat rare, especially against big companies. Only fourteen other actions have been brought since the rule was promulgated in 2000, and all except one of those were filed as settled actions. (The other litigated action was dismissed by a court in 2005 for failure to state a claim.)
AT&T has issued a press release denying that material nonpublic information was conveyed during the calls (although it does not contest the allegations regarding the substance of the calls) and stating that the subject of the analysts’ phone calls was a publicly-known reduction in equipment revenue caused by an industry-wide phase-out of subsidies for smartphone upgrades, that smartphone sales were immaterial to the company’s earnings, and that there was no market reaction to AT&T’s first quarter 2016 earnings results when released. AT&T further stated that the lawsuit “will not protect investors and instead will only serve to chill productive communications between companies and analysts,” and that it “will only create a climate of uncertainty among public companies and the analysts who cover them.”
Still, the facts as alleged by the SEC in the complaint—including that express directions were given to walk the analysts back, that several executives were involved (not just, for example, one rogue employee) and that analysts did shift their forecasts after the calls (as explained in a detailed chart in the complaint)—indicate that the agency believed it had a strong enough case to litigate.
The action will be closely watched by market participants. There are a number of points to consider in the wake of this action:
- Although the SEC infrequently brings enforcement actions for violating Reg FD, it remains an area of focus. In an era where the SEC has already issued warnings about potential insider trading in the wake of COVID as well as the need for strong controls around MNPI, we suspect that Reg FD will be an important tool in the SEC’s arsenal for attacking what it views as potential abusive market practices. In particular, the SEC under Chair Gary Gensler (once he is confirmed)—which will be focused on investor protection and on big corporations, private equity sponsors and financial institutions—may be more willing to bring actions against entities that it sees as pushing boundaries or taking aggressive positions in relation to the handling of MNPI.
- Merely having training sessions on Reg FD may not be enough to protect a company from persuading the SEC to not bring a case in this area—the individual defendants in AT&T are alleged to have received training. Accordingly, it is also important to monitor employees’ compliance with Reg FD, and companies should consider giving repeat trainings and/or soliciting repeated acknowledgments of their Reg FD policies. Additional trainings with senior leadership—who are most susceptible to crossing a line—are advisable as well.
- Companies should continue to be careful about one-on-one calls with analysts, especially because the SEC must have rejected AT&T’s argument that its one-on-one calls did no more than repeat publicly-known information. A company should document both what is communicated and its consideration of whether the communication includes material nonpublic information.
- Companies should be mindful of the circumstances of analyst calls. Based on the AT&T complaint, there is particular risk in undertaking an organized campaign to deliver a specific message to multiple analysts—especially if it is shortly prior to an earnings release, and even more so if there is a divergence between street consensus and the company’s own expectations.
 Compl., SEC v. AT&T, Inc., No. 21-cv-1951, ECF No. 1 (S.D.N.Y. Mar. 5, 2021).
 17 C.F.R. § 243.100 et seq. Reg FD requires that “[w]henever an issuer, or any person acting on its behalf, discloses any material nonpublic information regarding that issuer or its securities to [certain persons], the issuer shall make public disclosure of that information . . . (1) [s]imultaneously, in the case of an intentional disclosure; and (2) [p]romptly, in the case of a non-intentional disclosure.” Id. § 243.100(a).
 Of these fourteen enforcement actions, two were brought solely against individuals, five were brought solely against companies, and seven were brought against both companies and individuals at the companies.
 SEC v. Siebel Systems, Inc., 384 F. Supp. 2d 694 (S.D.N.Y. 2005).
 Interestingly, a recent Wall Street Journal article states that “a person familiar with the matter” said that “[a]nalysts 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.” Dave Michaels & Drew FitzGerald, SEC Alleges AT&T, 3 Employees Tipped Off Wall Street, WSJ (Mar. 5, 2021).
 One of the SEC’s allegations is that the timing and the subject matter of the calls independently conveyed material nonpublic information to the analysts—that the analysts’ revenue and related estimates were higher than AT&T’s expected results. Compl. ¶ 70. In other words, the SEC views the circumstances surrounding the calls themselves as suspect.