SEC Enforcement Action Alleges Selective Disclosure of Material Nonpublic Information to Wall Street Analysts

April 2, 2021

On March 5, 2021, the SEC announced that it had charged a large telecommunications company with repeatedly violating Regulation FD, and three of its investor relations executives with aiding and abetting the company’s violations by selectively disclosing material nonpublic information to research analysts.

According to the SEC’s complaint, after the company learned that a steeper-than-expected decline in smartphone sales would cause the company’s revenue to fall short of analysts’ estimates for the third consecutive quarter, the executives made private phone calls to analysts at approximately 20 separate firms to induce them to lower their revenue estimates to the level that the company expected to report to the public, thereby enabling the company to avoid another revenue miss.

On these calls, the executives allegedly disclosed the company’s internal smartphone sales data and the impact of that data on internal revenue metrics, despite the fact that internal documents specifically stated that such information was generally considered “material” to investors, and therefore prohibited from selective disclosure under Regulation FD.

“Regulation FD levels the playing field by requiring that issuers disclosing material information do so broadly to the investing public, not just to select analysts,” said Richard R. Best, Director of the SEC’s New York Regional Office. “[The company’s] alleged selective disclosure of material information in private phone calls with analysts is precisely the type of conduct Regulation FD was designed to prevent.”

The complaint seeks permanent injunctive relief and civil monetary penalties against each defendant.

View All Ticker Posts