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AT & T supervisors encouraged representatives to create fake DirecTV accounts. For example, the online video service appears to be more successful than it actually was, according to a class action complaint.
"AT & T"[ed] and reward[ed] Account fraud "such as creating fake accounts and signing AT & T customers for DirecTV Now" without the client's knowledge, "says the lawsuit.
The new allegations were made Friday in an amended suit in the context of a lawsuit filed against AT & T in April in the Southern District Federal Court of New York. The lawsuit alleges that AT & T lied to investors in order to mask the failure of DirecTV Now.
"AT & T has misrepresented the real state of DirecTV Now and hid the associated risks," says the amended complaint. The inevitable failure of DirecTV Now was subsequently highlighted when the number of subscribers began to drop, according to the amended complaint:
The dramatic drop in the number of subscribers to DirecTV Now is a materialization of the associated risks, including: improper sales practices, such as the creation of fake accounts, which have predictably led subscribers to cancel these accounts, after have been billed for a service provided Do not use; aggressive use of promotional campaigns to artificially maintain subscriber levels; and sell the product at irrationally low prices that should ultimately increase.
As previously noted, the lawsuit seeks certification of a class consisting of all persons who acquired AT & T common shares in connection with the acquisition of Time Warner Inc. and all persons who acquired AT & T shares between October 22, 2016 and October 24, 2018. When AT & T bought Time Warner in June 2018, shares of Time Warner shareholders were converted into AT & T shares. AT & T issued these shares pursuant to a registration statement with the SEC that had lied about the performance of DirecTV Now.
AT & T TV biz in free fall
When contacted by Ars yesterday, AT & T said it "will fight these baseless accusations in court," but does not provide any specific answers to the new allegations.
AT & T must defend itself against the lawsuit while its television business is in rapid decline despite the acquisitions of DirecTV and Time Warner. Last week, AT & T told shareholders that it planned to lose approximately 1.1 million television subscribers in the third quarter with its DirecTV and U-verse satellite television services. This does not include DirecTV Now, recently renamed "AT & T TV Now".
AT & T launched DirecTV Now in November 2016 with a rebate starting at $ 35 per month. DirecTV Now built 1.86 million subscribers at the end of the third quarter of 2018, but that number fell to 1.34 million in June 2019 after a series of price rises.
According to the complaint, AT & T and executives, including CEO Randall Stephenson, have breached securities law by making false and misleading statements about the performance of DirecTV Now. The plaintiffs are seeking compensatory damages for the investors.
Ex-employees say shady tactics
The amended complaint cites 17 confidential witnesses who worked for AT & T and another who worked for an AT & T contractor. The witnesses include sales representatives and consultants, sales managers, an assistant sales vice president, DirecTV Now's product analysis team, a senior financial analyst, a regional director of business operations, a director of operations, a product developer, a financial analyst, and a strategic pricing officer. They worked for AT & T in various parts of the United States, including Hawaii; Michigan; Pennsylvania; New Jersey; California; an AT & T regional office covering Alabama, Louisiana and Mississippi; Georgia; Oregon; and Idaho.
CW-1 (private witness 1), sales representative at AT & T in Hawaii from 2015 to June 2018, described a practice of creating fake DirecTV Now accounts for customers. The complaint says:
CW-1 said that it had "learned to manipulate" DirecTV Now sales when customers were activating new mobile phones. According to CW-1, when a wireless client came into the store to get a new phone, he had to traditionally pay an activation fee to upgrade his phones. After the launch of DirecTV Now, CW-1 and his colleagues learned how to convert activation fees into up to three subscriptions to DirecTV Now and secretly waive these fees.
CW-1 and other sales representatives told customers that there was a $ 35 activation fee and that their purchase was accompanied by a free DirecTV Now for one to three months, according to the complaint. CW-1 and the other AT & T employees would then waive the activation fee on the AT & T system, but would not tell the customer that they were doing so CW-1 and his colleagues were billing the amount activation fee to the customer but money to the DirecTV Now subscription ".
The complaint continues:
CW-1 added that, when DirecTV Now was organizing a promotion, it was taught to sales reps to create up to three accounts with the $ 35 activation fee. They would do this by using "fictitious" e-mail addresses for additional accounts and "sneakily executing". the customer's credit card for each account. CW-1 added that the AT & T system was designed to allow this and that it was not necessary to check the email accounts so that store personnel could "insert" any email address into their system. and use the same credit card for multiple accounts.
CW-1 further indicated that once the supposed test period was over, he and his colleagues were supposed to manually cancel these subscriptions so that the customer would not be billed. CW-1 explained that they would do it via a back-end system, without the client's knowledge. CW-1 added that they would keep a "log" detailing customer information, dummy email addresses, and the date they had to cancel. According to CW-1, the newspaper was kept on the notebook function on an iPad so that it could manually enter and cancel the accounts. CW-1 added that sometimes customers continued to charge their credit cards without their knowledge, but most of the time, CW-1 and his colleagues opened accounts and canceled them manually to remove recurring charges.
CW-1 said that this practice had started in 2017 and "that his colleagues and he could blow up the growth of the number of subscribers using these sales tactics," the complaint said. Originally, each sales representative had the goal of creating 8 to 10 new DirecTV accounts each month, but this goal "has grown rapidly to 20-30 new accounts per sales representative each month," says complaint.
CW-1 further asserted "that he had heard AT & T employees from the west and east coasts of the United States say that they had been instructed to create false accounts of the same way as it ", says the complaint.
Same tactic reported in other states
According to the complaint, other confidential witnesses told similar stories.
CW-2, who worked for AT & T as a senior sales consultant in Michigan, "said they would try to present DirecTV Now, but that it was a" very difficult sell "and that sometimes the customer said he did not want the product, but they would go ahead and add it anyway to the account without telling them, "said the complaint.
CW-5, a retail consultant at AT & T stores in New Jersey, said "in December 2017, a store manager sat him down and explained to him that management was following a certain argument to incite customers to subscribe to DirecTV Now, even if the customer did not understand what he was signing for, "said the prosecution. "CW-5 explained that this involved informing the customer that they were paying for one thing, but actually assigning that charge in the system to DirecTV Now."
Allegations of misrepresentation to investors
The lawsuit lists what it calls many "false and misleading statements and omissions" in the statements made to investors between September 2016 and September 2018. These false and misleading statements allow AT & T's "to give credit to the company." impression of a state of affairs regarding DirecTV now that differs a material way from the one that actually existed, "the complaint said.
For example, AT & T continued to tout DirecTV Now's alleged success for much of 2018, even after "AT & T conducted an internal investigation into fraudulent business practices and DirecTV Now that found that many fraudulent employees had created a fraudulent account, "says the complaint. In September 2018, Stephenson told investors that "the [DirecTV Now] The customer base has been very resilient to price fluctuations as we have added new features to the platform, the cloud DVR and multiple feeds. "
AT & T finally started revealing the truth about DirecTV Now's performance in October 2018, the trial said. That's when AT & T announced a dramatic reversal of DirecTV Now's business which it said resulted from a decision to "streamline" product pricing. "said the complaint. Other revelations would have made it clear that "AT & T was engaged in an aggressive promotional activity and had assembled a massive group of highly promotional customers who, pretty much, ensured that DirecTV Now would not be profitable. "
The new results and information "partly revealed the falsity of AT & T's earlier statements about DirecTV Now and was a materialization of previously hidden risks regarding DirecTV Now," the complaint said.
Despite this information, Stephenson told investors in December 2018 that the service had 2 million customers, according to the complaint. But DirecTV Now had not actually reached 2 million customers, since it lost 267,000 customers in the fourth quarter of 2018 after peaking at 1.86 million, the complaint said.
"The defendants told the market that DirecTV Now continued to grow while the opposite was true," the complaint said.
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