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Settlement Conference Looms

Judge Sets Oct. 17 Paperwork Deadline in SEC-AT&T Legal Fight

The SEC and AT&T face an Oct. 17 court deadline for submitting a proposed schedule through the start of trial in their 18-month legal fight, including an estimate about how long a trial would last, said an order (docket 1:21-cv-01951) signed by U.S. District Judge Paul Engelmayer. The judge, in a Sept. 8 opinion, denied the parties’ cross motions for summary judgment in the case, in which the SEC sued AT&T for violations of the commission’s fair disclosure regulation (Reg FD).

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The Oct. 17 deadline assumes a Sept. 26 settlement conference won’t result in a resolution in the case, said Engelmayer’s order. The judge won’t impose “any obligations” on SEC and AT&T lawyers before the deadline to enable them to prepare for the settlement conference, “undistracted by the press of other work in this matter,” said his order.

The March 2021 case stems from SEC allegations that AT&T and three members of its investor relations team conspired to selectively disclose “material nonpublic information” (MNPI) to analysts at 20 Wall Street firms with the aim of lowering their consensus forecast on Q1 2016 revenue. The goal, alleged the SEC, was to enable AT&T to beat the consensus estimate for that quarter after the company missed Wall Street’s consensus targets in two of the previous quarters. Reg FD prohibits public companies from selectively disclosing MNPI about itself or its stock to people outside the company, unless it also discloses that information to the public.

Engelmayer, in his Sept. 8 opinion, rejected AT&T’s challenges to the validity of Reg FD on constitutional and statutory authority grounds. The evidence the SEC presented was “formidable” that AT&T and its three IR individuals violated Reg FD, said the judge.

At the same time, summary judgment cannot be entered for the SEC,” said Engelmayer. “A reasonable jury could find for the individual defendants, at a minimum, on the element of scienter,” he said, meaning the three IR team members could show that they didn’t knowingly violate Reg FD. “Barring settlement,” said the judge, “the SEC’s claims therefore must be resolved at trial.” He called the case a “rare litigated enforcement action” bought by the SEC.