(Reuters) — A U.S. judge on Thursday rejected AT&T Inc.’s bid to dismiss an unusual lawsuit from the Securities and Exchange Commission that accuses 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 “overwhelming” evidence that AT&T and three investor relations executives falsely warned analysts in March and April 2016 that lower-than-expected smartphone sales would reduce overall revenue.
The SEC said this violated Regulation FD, or fair disclosure, which it enacted in 2000 to prevent companies from disclosing material nonpublic information privately but not to the public.
The judge ended up declaring victory for the SEC, saying that 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 to trial, barring settlement,”; Judge 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 companies.
AT&T’s alleged goal was to “manipulate” these analysts and get them to lower their revenue forecasts, so that actual results would meet the lowered forecasts and not disappoint investors who might otherwise drive down the stock price.
According to court papers, the selected analysts “uniformly” cut their revenue estimates by an average of $1 billion, just enough for AT&T to beat the lowered consensus forecast.
Judge Engelmayer also rejected AT&T’s claim that Regulation FD was itself unconstitutional because it violated the company’s freedom of speech.