AT&T has been accused of pressuring employees to create bogus DirecTv Now accounts to artificially inflate subscriber numbers ahead of its Time Warner merger.

A group of investors, including Steamfitters Local 449 Pension Plan, filed a lawsuit against the American telecom company for misleading shareholders regarding the growth of the streaming television service in the lead up to its merger with Time Warner in 2018.

AT&T supposedly told investors that its DirecTV Now business was growing when it was really losing subscribers, according to the complaint.

Fake DirecTV Now Accounts

The plaintiffs alleged that AT&T had purposely taught and encouraged its workers across the United States to add a DirecTV Now subscription to existing customers' accounts. This was done without ever telling the account owners about the illicit addition under their name.

Telecom workers were said to have added the fake subscription by pretending to waive a $35 fee that AT&T customers usually paid to have their mobile phones upgraded. However, the fee is still charged against the customer and used to create multiple bogus DirecTV Now accounts. The lawsuit claimed that as many as three accounts were created as part of the scam.

"This apparent success was a complete mirage," the plaintiffs said.

"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."

Several executives in AT&T's sales department allegedly knew about the practice and had supported it, according to the complaint. This included Brian Shay, who is currently serving as the company's president of sales and distribution.

The plaintiff said the scheme was made to help boost AT&T's position while it was engaged in merger discussions with Time Warner at the time. They claimed that the merger was even promoted as building on Time Warner's HBO Now service and the launch of AT&T's own DirecTV Now offering.

In an email to Bloomberg, AT&T said the investors' claims were "baseless" and that it intends to fight them in court.

Criticism Of AT&T's Leadership

The investors' lawsuit against AT&T comes just a few days after Elliott Management revealed that it has a $3.2 billion stake in the telecom company. The activist hedge also released a 23-page report where it criticized AT&T's leadership and its decision to buy both Time Warner and DirecTV Now.

Elliott Management claimed that the company's purchase of Time Warner and DirecTV Now were misguided, and that the move only served to damage AT&T's value.

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