A U.S. judge on Thursday rejected AT&T Inc’s (T.N) bid to dismiss an unusual Securities and Exchange Commission lawsuit accusing the phone company of selectively leaking financial information to Wall Street analysts.
In a 129-page decision, U.S. District Judge Paul Engelmayer in Manhattan said he found “formidable” evidence that AT&T and three investor relations executives improperly warned analysts in March and April 2016 that lower-than-expected smartphone sales would cut into overall revenue.
The SEC said this violated Regulation FD, or fair disclosure, which it adopted in 2000 to bar companies from disclosing material nonpublic information privately but not to the public, helping level the playing field for investors.
But the judge stopped short of declaring victory for the SEC, saying reasonable jurors could conclude that the executives Christopher Womack, Kent Evans and Michael Black did not intend to defraud investors.
“This case will now proceed toward trial, barring settlement,” Engelmayer wrote.
AT&T and the SEC did not immediately respond to requests for comment.
In its March 2021 lawsuit, the SEC accused Dallas-based AT&T of leaking details about its smartphone business to 20 firms.
AT&T’s alleged goal was to “manage” those analysts and have them lower their revenue forecasts, so that actual results would meet the reduced forecasts and not disappoint investors who might otherwise drive its share price down. According to court papers, the selected analysts “uniformly” cut their revenue estimates by an average $1 billion, just enough for AT&T to beat the lowered consensus forecast.
Engelmayer also rejected AT&T’s claim that Regulation FD itself was unconstitutional because it infringed the company’s free speech.
The case is SEC v AT&T Inc et al, U.S. District Court, Southern District of New York, No. 21-01951.