A federal securities lawsuit against AT&T and multiple executives and directors of the company mirrors many of the same troubling allegations as those seen at Wells Fargo, fraught with examples of widespread sales and customer-manipulation tactics.
The 233-page amended complaint, In Re AT&T/DirecTV Now Securities Litigation, filed on Sept. 17 in the U.S. District Court for the Southern District of New York, stems from a complaint first filed on April 1. Law firms Labaton Sucharow and Pomerantz jointly announced the filing of the lawsuit, which seeks certification of a class, on behalf of all individuals or entities who acquired AT&T common stock in connection with AT&T’s June 2018 acquisition of and merger with Time Warner, and/or all people who acquired AT&T stock between Sept. 21, 2016, and Jan. 30, 2019.
“During the class period, AT&T misrepresented the true condition of DirecTV Now and hid the associated risks,” the amended complaint states. “The dramatic decline in DirecTV Now subscriber numbers was a materialization of the risks associated, including improper sales practices—such as the creation of fake accounts, which predictably led subscribers to cancel these accounts upon realizing they were being billed for a service they did not use; the aggressive use of promotional campaigns to artificially sustain subscriber levels; and selling the product at irrationally low prices that would ultimately need to increase.”
The lawsuit further alleges AT&T’s management conceived and ordered a scheme to create bogus DirecTV Now accounts in order to mask the dire reality of its new and unproven service and then lied to investors about the success of the flagship product. The complaint further alleges DirecTV Now was unreliable and prone to technical flubs, was of only marginal interest to AT&T customers, and, in a misguided attempt to compete with other content providers, was priced so low it could not generate meaningful revenue to the company.
“Whether at Wells Fargo or AT&T, or anywhere else, we need to stand up for investors who were misled by unconscionable sales and customer-manipulation tactics, whose only goal is to pad a corporate bottom line,” said
Jeremy Lieberman, Managing Partner, Pomerantz
The fabricated DirecTV Now accounts, according to the allegations, resulted from unrelenting pressure and strong-arm tactics from AT&T’s senior management to increase sales, which led employees to slip DirecTV Now and its monthly fee into subscriptions of AT&T customers without their knowledge. Promotions and giveaways were enough to entice some customers into willingly signing on for a DirecTV Now subscription; according to the lawsuit, many of them never used the service and most stopped subscribing as soon as their heavily discounted promotions ended.
At the same time DirecTV Now struggled technically and financially, the complaint alleges, AT&T executives—including Chairman and CEO Randall Stephenson and Senior Executive Vice President and CFO John Stephens—extolled the service in public statements as having “caught fire” and being in “really, really high” demand, with growth that was nothing short of “dramatic,” “impressive,” and “solid.”
The complaint alleges these claims were little more than a mirage, however, grounded in deception. Senior executives knew of, and approved, the scheme to artificially boost DirecTV Now numbers by whatever means possible. “This was a widespread, far-reaching fraud,” said Carol Villegas of Labaton Sucharow.
AT&T acquired the DirecTV Group in 2015 and subsequently purchased Time Warner and that company’s vast library of video content. AT&T executives have subsequently admitted DirecTV Now was launched as a “placeholder” until the Time Warner deal closed. The streaming service is now called AT&T TV Now.
However, the product struggled to get airborne. High customer turnover, often the result of customers dropping DirecTV Now after a promotion ended, brought constant pressure to land new subscriptions, according to the complaint. The lawsuit outlines various ways in which AT&T customers were fraudulently billed or duped into signing up for DirecTV Now; many rely on the creation by AT&T employees of fake e-mail addresses, both to artificially inflate DirecTV Now subscription numbers and presumably so that customers would not receive e-mail messages that would arouse their suspicions.
History of misleading practices
The complaint sets forth several troubling allegations behind AT&T’s drive to manufacture DirecTV Now growth, including:
- AT&T salespeople were instructed to bundle up to three DirecTV Now accounts with a single mobile phone activation, sometimes creating fake e-mail addresses and running the customer’s credit card three times. Customers who signed up for trial subscriptions might have their credit cards run for three subscriptions, two of them wholly imaginary and tied to phony e-mails.
- In an atmosphere of aggressive sales tactics and impossibly high quotas, customers were signed up for DirecTV Now, even after they said they didn’t want it; fake e-mail accounts were used, and customers never found out unless they noticed the charges on their credit cards.
- In other cases, sales people signed up customers for DirecTV Now without any discussion at all.
- Sometimes customers were told they would be charged for one thing, but in the billing records that charge was in fact applied to the DirecTV Now service.
- Customers might be flatly lied to—told that DirecTV Now was part of a service package when it in fact came with an extra, monthly fee.
According to the complaint, AT&T executives “should have been on heightened alert” as to the marketing and selling of DirecTV’s products, due to DirecTV’s long history of false and misleading advertisements. In 2005, DirecTV entered into an agreement with several states’ attorneys general, entitled “An Assurance of Voluntary Compliance,” whereby DirecTV undertook to “in all advertising it creates, clearly and conspicuously disclose to consumers all material terms and conditions associated with the specific offer or sale of DirecTV equipment or DirecTV services as advertised.”
As part of a settlement reached with the attorneys general for all 50 states in 2010, DirecTV entered a consent decree with the State of Washington, in which it agreed, among other things, to “clearly and conspicuously disclos[e] all material terms and conditions of an offer to sell or lease DirecTV goods or services.”
“Whether at Wells Fargo or AT&T, or anywhere else, we need to stand up for investors who were misled by unconscionable sales and customer-manipulation tactics, whose only goal is to pad a corporate bottom line,” said Jeremy Lieberman of Pomerantz.