Reg FD – Making a Return?

Regulation FD was supposed to be a significant achievement when it was passed over a decade ago. At the time it was touted as a regulation that would be important in creating a level playing field for all. Essentially the rule was supposed to be a kind of insider trading for corporations. No longer could the company selectively disclosure material events to some but not all sources. Moving forward material information would be available to all.

Once passed many wondered if Reg FD would be a new Enforcement Priority. While a few cases were initially filed in 2010, since the Netflix 21(a) Report in April 2013 virtually no other case was brought until 2019. Stated differently, the new enforcement priority seems to have become just another afterthought.

Now however, the Commission has brought a significant Reg FD case. SEC v. AT&T, Inc., Civil action No. 1:21-cv-01951 (S.D.N.Y. Filed March 5, 2021). The action is straight forward. The complaint names as defendants the firm and three of its executives, Christopher Womack, Kent Evans and Michael Black.

In early 2016 the company learned that it was going to miss its revenue projections prior to the release — the third consecutive quarter. This resulted from a steep decline in the upgrade of smartphones by customers.

The Director of Investor Relations then directed Messrs. Momack and Black to call analysts and talk them down their equipment revenue number to ameliorate what could be a billion-dollar miss. The executives made the call despite the firm’s Reg FD regulations and compliance procedures. A total of 20 firms were called. In some instances, those contacted were told the information being furnished was public – it was not.

Following the calls from AT&T executives, the analysts adjusted their numbers. When the 1Q16 numbers were released AT&T beat the reduced consensus estimates. The complaint alleges violations of Exchange Act Section 13(a). The case is pending. See Lit. Rel. No. 25045 (March 5, 2021).

The question now is whether this action is just a one off case or the beginning of a new focus?