AT&T: A Case Study Understanding a SIM Card Fraud

In this blog post, I will illuminate the complexities of resolving financial disputes through arbitration by focusing on a case which my partner, Dennis Boyle, and I have recently resolved against AT&T.  This case will highlight the challenges faced by individuals—in this case a former customer of AT&T—and offer insights into the arbitration process within alternative dispute resolution services, such as the American Arbitration Association (AAA) or the Financial Industry Regulatory Authority (FINRA).

Statement of Facts:

AT&T is one of the largest telecommunications companies in the world and has been a mainstay in the industry since the late 19^th century when it was founded as a subsidiary of the Bell Telephone Company.  Over the years, AT&T has grown through mergers and acquisitions to become a dominant player in the telecommunications industry.  As part of its global operations, AT&T collaborates with various international vendors and partners to provide a range of products and services to its customers worldwide. These collaborations may involve sourcing equipment, technology, or human resources where AT&T hires employees or contractors from different countries to fill specific roles within the company or to work on projects which require specialized skills or expertise.

It is common practice for large multinational companies like AT&T to source human resources from various locations, including foreign vendors or partners, and there are many valuable benefits to doing so. It can enhance organizational capabilities, improve flexibility, and drive business growth.

However, in our case, a foreign vendor AT&T employed was at the core of a dispute between the customer—our client—and AT&T. John Smith, a pseudonym for privacy reasons, was a customer of AT&T for almost two decades. He had all the latest security measures in place, including two-factor authentication and a strong password for his online accounts. Little did he know that these precautions would be rendered futile by a cunning SIM swap scam perpetrated by an employee of AT&T’s vendor in the Philippines.  A SIM swap happens when scammers take over control of your phone by contacting your phone service provider and tricking them into connecting your phone number to a new SIM card in their possession. Read my previous blog post hereto learn more about this type of scam.

John’s issues all started when he suddenly noticed a loss of signal on his cell phone. Within minutes, he began receiving notifications about unauthorized access to his email account and his cryptocurrency accounts. Panic set in as he realized that his phone and his cryptocurrency accounts had been hijacked. He immediately called AT&T and representatives were able to restore his access to his phone. However, the damage had already been done and John lost all of his cryptocurrency funds. The hackers had already accessed his account and transferred his funds to an unknown address.  John’s story is a stark reminder of the vulnerabilities inherent in our digital lives and, surely, as one might expect, AT&T immediately agreed to compensate John for the loss he suffered at the hands of its own agent, so things were resolved quickly, and it wasn’t that big of a deal.

Actually, no, that is not what happened. AT&T denied responsibility and forced John to hire an attorney—us—to resolve the matter. It was during the investigation that we discovered that John’s claim was subject to mandatory arbitration through AAA.

The Arbitration Process.

Arbitration is a contact-based process to resolve disputes between parties to a contract. Although these agreements originated in disputes between business agencies, corporations soon realized that through the use of an arbitration clause, they could avoid public courtrooms and limit the discovery normally required in a legal matter. They could also avoid having issues decided by a court or a judge, and they could avoid having legal issues appealed to an appeals court. The result was a cheaper, easier, and beneficial way to resolve disputes. Arbitration is enforceable under the Federal Arbitration Act (FAA), and courts nearly universally enforce these agreements.

            We represent people in arbitration proceedings both in the United States and internationally. In the U.S., common arbitrational fora include AAA and FINRA, among other organizations. Internationally, the International Court of Arbitration, an organ of the International Chamber of Commerce, is a common forum, but there are many other organizations that provide arbitration services.

John’s Claim against AT&T.

In John’s case, we claimed that AT&T breached its consumer service agreement before AAA when its vendor employee accessed John’s account information and used said information to conduct a SIM swap on his cell phone, accessed his cryptocurrency accounts, and misappropriated his funds. We also claimed that AT&T violated the Federal Communications Act, which in Section 222(a) provides that every telecommunications carrier has a duty to protect the confidentiality of proprietary information of customers. AT&T’s position was that it was not liable to John because a third party hacked John’s phone. AT&T had previously been successful with this exact argument in a multi-million-dollar cryptocurrency theft lawsuit Michael Terpin filed against AT&T in the Central District of California. Terpin has since appealed the court’s ruling and his appeal is currently pending in the Ninth Circuit.

But, here, our investigation revealed that John’s phone was not hacked by a third party, but by AT&T’s very own vendor employee.

So why would AT&T not just compensate John? To spoil the ending, this is exactly what AT&T ended up doing, eventually, but the path to John’s success was a long and difficult one.

AT&T’s initial strategy seemed to be to make this arbitration as difficult as possible for us. From day one, AT&T forced us to arbitrate every little issue in the case. The first issue: where should the final hearing be held? A mundane issue such as this one is usually resolved with a brief email exchange between counsel and the resolution includes a location that is convenient for everyone, and especially for the customer. John lived in a large city in the United States, we were in the District of Columbia, as was the arbitrator. The counsel for AT&T was located in California.  

AT&T, however, insisted that the location for the hearing should be based on John’s address at the time when he became a customer of AT&T, 20 years ago. So, the location for the hearing should be a rural small town hundreds of miles away from the nearest airport in a rural community. This location was hundreds of miles away for all parties involved in this arbitration. In addition, there were no locations in that town that could support the arbitration. Why did AT&T want to do this? There did not seem to be a reasonable basis for the location. We ultimately agreed to conduct the hearing via zoom, though it is not something that we like to do. We prefer the arbitrators to see our clients in person.

Once this issue was resolved, AT&T decided to make the discovery process as arduous as possible. AT&T provided no meaningful discovery at first and objected to any subpoena we requested for any reason—first, they argued we had not conferred with AT&T prior to requesting the subpoena (we did); second, AT&T needed more time to review the subpoenas; third, we failed to identify the time and place for the production of documents (we identified the time and place of production); fourth, the documents are covered by the attorney-client privilege, the common interest privilege, and are covered by confidentiality agreements (interesting argument seeing that AT&T previously claimed that the vendor employee was a “third party”); fifth, the documents we requested were not relevant (we requested information about the vendor employee which was actually highly relevant); and, when all these arguments failed, AT&T argued that third-party requests for documents were not permitted.

The discovery process, and especially the issuance of subpoenas, in arbitrations are unlike the discovery process in a normal litigation before a court. This is a topic that requires its own blog post, but in short: in a AAA arbitration, the consumer rules prescribe that the “arbitration must remain a fast and economical process” and the arbitrator may direct “specific documents and other information to be shared between the consumer and business”. See Consumer Arbitration Rule R-21. In a FINRA arbitration, requests for information are “generally limited to identification of individuals, entities, and time periods related to the dispute; such requests should be reasonable in number and not require narrative answers or fact finding. Standard interrogatories are generally not permitted in arbitration.” See FINRA Rule 13506.

In our case, AT&T refused to provide the most basic information and it was clear that its sole goal was to delay the discovery process and to distract from the real issue in the arbitration—the fact that a vendor employee of one of the largest telecommunications companies in the world stole from its own customer.

As the time for the final evidentiary hearing drew closer, the attorney who had originally be representing AT&T in the arbitration was replaced. Once documents were produced, this new attorney was able to come up with sufficient funds from AT&T to resolve the case.

Lessons Learned.

Although we were ultimately successful in our representation of John, there were some valuable lessons we learned in this matter:

• First, even when a recovery seems obvious, it is still necessary to do the hard work to properly prepare the case.
• It is important to be prepared to go to the hearing and prove the case.
• Even well-respected companies, like AT&T, will engage in dilatory tactics to waste time and money.
• Ultimately, however, justice may be available.

We still represent victims of SIM card frauds as well as victims of other types of financial fraud. These case can be a battle, but those who are victims of frauds can only receive what they deserve if we and attorneys like us are willing to fight the battles that are necessary to win.