An amended class action suit has been filed against AT&T and several of its top executives, alleging that the telecom violated federal securities laws through deceptive actions and statements regarding DirecTV Now.
The suit charges that AT&T artificially pumped up subscriber counts for DirecTV Now (recently rebranded AT&T TV Now) streaming service, launched in November 2016, in order to hide serious technical problems and high subscriber churn.
An amended version of the complaint, originally filed on April 1, was filed on September 13 in the Southern District of New York on behalf of Melvin Gross and other individuals and entities that purchased AT&T stock during the periods of the alleged misrepresentations.
The complaint charges that AT&T CEO Randall Stephenson and other executive defendants "falsely depicted DirecTV Now as a fast-growing product with increasing subscribers and strong margins that would offset declining subscriber levels in AT&T’s other video products, including its mature satellite DirecTV product."
This “apparent success was a complete mirage,” it states. “Information provided by multiple former employees of AT&T and its affiliates from across the country collectively confirm a wide-ranging fraud, perpetrated at the highest levels of the Company, as it pertains to subscriber numbers, promotional activity, customer churn, and the growth and success of DirecTV Now.”
The suit alleges that the company drove up subscriber numbers between 2016 and 2018 by pressuring employees to engage in activities such as adding DirecTV Now subscriptions to existing customer accounts without customers’ knowledge “using short-term promotions,” and bundling multiple accounts into a single activation, sometimes by creating false email addresses and running a credit card multiple times.
The temporary inflation of subscriber numbers was meant to buoy the perceived value of the company while AT&T was in merger talks with Time Warner, the suit alleges. Combining DirecTV's internet and mobile distribution capability and Time Warner's video content was a key rationale for the $108.7 billion (including debt) merger.
The suit points out that after reporting significant gains in DirecTV subscriptions for several quarters, AT&T began to report subscription declines after the merger with Time Warner closed in third quarter 2018.
It asks that the court certify the class, then proceed to a jury trial.
In response to the lawsuit, AT&T told several press outlets that it plans "to fight these baseless claims in court."