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Editor's note: An original version of this story attributed the service changes to Clearwire's Clear 4G network, however the changes occurred in the company's original Expedience network. The Fool regrets the error.
A new motion in an old lawsuit alleges fresh evidence that Clearwire (Nasdaq: CLWR ) committed fraud -- knowingly recruiting customers outside the effective range of its original wireless network, then charging them usurious cancellation fees.
The motion, filed in the U.S. District Court in Seattle last Thursday, cites a former Clearwire sales manager, Donald Hammond, as a key witness to the alleged fraud. Hammond twice spoke at length with the plaintiff's attorney, Jonathan Tycko, and in those conversations provided details of a program called 'Project Star Trek,' executed sometime in mid-2008, the documents say.
According to the motion, the code name referred to changes to Clearwire's pre-qualification tool, which would allow salespeople to sell service to customers that had previously been considered outside the effective range of its service. The goal, the motion says, was to increase the company's gross subscriber additions, making the stock more attractive to investors.
A copy of an internal Clearwire email that refers to changes to the pre-qualification tool was included as supporting documentation in the motion, as was the text of an anonymous letter that appeared to confirm most of Mr. Hammond's accusations.
Clearwire, for its part, denies any wrongdoing.
"Any allegation that Clearwire conspired to mislead its customers is baseless and absurd. We flatly deny any inference of fraud. We will vigorously defend ourselves against any such allegations," wrote spokesperson Mike DiGioia in an emailed statement.
Compelling though this narrative may be, investors weighing the potential fallout need to bear three things in mind:
- First, the motion refers to a case that was dismissed in February of last year. Tycko and the class action group of plaintiffs represented in the new motion are asking that the case be reconsidered, so that discovery may unearth additional evidence supporting Hammond's allegations.
- Second, it doesn't appear as though anyone has officially deposed Hammond as a witness. We can't fully judge the quality of his testimony till that's occurred.
- Third, with Verizon (NYSE: VZ ) pushing the envelope on mobile broadband speeds and AT&T (NYSE: T ) making every effort to get its network ready for 4G handsets, Sprint Nextel (NYSE: S ) has plenty of incentive to stand by its WiMAX partner.
But that's my take. Where do you stand? Let us know what you think about the Hammond's accusations, Clearwire's service, and the likelihood of irreparable harm to the underlying business using the comments box below.
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