In a press release on March 5, 2021, the U.S. Securities and Exchange Commission (“SEC”) announced that it had charged AT&T and three of its executives with violations of Regulation FD. Regulation FD was first promulgated by the SEC in 2000 in order to curtail the sharing of material non-public information with securities analysts. The “FD” in Regulation FD stands for “fair disclosure,” signaling the Commission’s intent to make disclosure of material information fair for all investors. While Regulation FD has the flavor of insider trading, violations of the rule do not require any actual trading to occur. Prior to its promulgation, corporations felt that they could receive more favorable treatment and more positive reports from analysts if they provided the analysts with information before the information was made public. Although such disclosures were typically paired with trading recommendations, the link between the disclosure and the eventual trade was often too tenuous to prosecute as insider trading. Regulation FD requires that any disclosure of material non-public information to a securities analyst be accompanied by disclosure to the public via a Form 8-K filing with the SEC. Because violations of Regulation FD require only the disclosure of the material non-public information and not necessarily a trade, corporations are incentivized to provide material information to the entire market, thus making the disclosure a “fair disclosure.”
In its press release, SEC alleges that in March 2016, three AT&T investment relations executives disclosed to analysts at 20 firms that a steeper-than-expected decline in its first quarter smartphone sales would cause AT&T’s revenue to fall short of analysts’ estimates for the quarter. The executives allegedly made these disclosures despite the fact that internal AT&T documents made it clear that smartphone sale data was considered material to AT&T’s investors. SEC alleges that, as a result of the calls, analysts reduced their revenue projections for AT&T, and the new projections were “just below the level that AT&T ultimately reported to the public on April 26, 2016.” The SEC’s complaint seeks injunctive relief and civil monetary penalties. In the SEC press release, Richard Best, Director of the SEC’s New York Regional Office, reiterated the SEC’s commitment to “level[ing] the playing field by requiring that issuers disclosing material information do so broadly to the investing public, not just to select analysts.”
The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with SEC investigations and related securities litigation. If you need assistance with such a matter, please contact us today.