SEC Charges Telecommunications Company with Selective Disclosure Violations

The SEC charged a telecommunications company with selective disclosure ("Regulation FD") violations and three investor relations executives with aiding and abetting the company's violations. The violations concerned calls by the executives for analysts to "walk the analysts down" after a "steeper-than-expected decline" in sales.

In a Complaint filed in the U.S. District Court for the Southern District of New York, the SEC alleged that the executives disclosed to the analysts the company's "record low" equipment upgrade rate (i.e., the rate at which existing customers purchased new devices) in an attempt to lower individual estimates so that the company could meet the consensus revenue forecast. The SEC claimed that the information allegedly shared by the executives, which included internal sales data and its impact on the company's revenue metrics, was material to investors and, therefore, could not be selectively shared under Regulation FD. The SEC further alleged that the executives "needed to call approximately 20 separate firms to bring the consensus down to where [the company] could meet it," as the company's revenue was expected to fall by more than $1 billion under the consensus forecast.

According to the Complaint, the consensus revenue forecast was so reduced that the company beat it when announcing earnings.

The SEC charged the company with violations of Exchange Act Section 13(a) and Regulation FD, and the individuals with aiding and abetting the company's violations. The SEC is seeking a final judgment (i) permanently restraining and enjoining the company and executives and (ii) directing payment of civil monetary penalties.