The suit alleges the company misled investors about the expected profitability of its artificial intelligence services
A class-action lawsuit launched last month in B.C. Supreme Court alleges Telus overstated its artificial intelligence capabilities, offering upbeat statements about its expectations for profitability in the emerging field and leading to financial losses for investors.
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Telus International (Cda) Inc. is named as the defendant along with over a dozen Telus executives and directors, including the Telus parent company CEO, Darren Entwistle, and Telus International’s CEO, Jeff Puritt.
The lawsuit alleges its digital services division, now called Telus Digital, was having trouble catching up with evolving AI technologies even as the company assured investors that its prospects of making money were rosier than the reality.
As technological change transformed the digital customer experience and IT services market, Telus “sought to gain an upper hand on its competition by developing artificial intelligence capabilities,” said the lawsuit, filed in December by representative plaintiff Kayne Michael Middleton, an investor who lost money on a Telus securities purchase in 2024.
“For several years, Telus touted its AI strategy and expected resulting profit growth to the investing public,” the lawsuit said. “Telus’s aspirations of being a forceful player in the market for AI solutions seemed on the brink of becoming reality, with the company boasting of the progress of its AI capabilities and expected profits in earnings calls, documents filed with securities regulators, and other communications with the investing public.”
As the company bought up AI-related businesses and tried to keep up with rapidly changing market conditions, it failed to admit its transition “faced significant barriers, which the company hid from the investing public,” the lawsuit alleged. “Behind Telus’ optimistic statements lay far bleaker prospects that the company would become a competitive and profitable player in the market for AI solutions,” it alleged.
“In fact, Telus failed to disclose to investors that its AI offerings were provided on a trial basis, generated lower margins than the company’s legacy offerings, and were cannibalizing some of its higher-margin offerings.”
The lawsuit alleges Telus breached its duty to investors by failing to disclose that “the company’s drive to develop AI capabilities was eroding its bottom line and was unlikely to generate the promised profits.”
From May 9 to Aug. 1, 2024, the lawsuit alleges, Telus’ disclosures “made material misrepresentations” of its prospects for profitability in AI, the reason for the company’s declining profits, and its decision to discount the price of its AI offerings. It failed to disclose “the negative changes to Telus’ business, operations, and/or capital caused by its profit-killing transition to AI offerings.”
The suit says Telus’ misrepresentations, lack of disclosure of changes in expectations and breaches of its duty of care to class members “had the effect of artificially inflating the value of Telus’ securities traded on stock markets during the class period.”
That led to the plaintiff and other class members buying Telus securities at inflated prices, the suit alleges, before shares fell precipitously when the company admitted, in earnings reports in May and August 2024, that its Telus Digital operation was struggling.
Sam Jaworski, a partner at law firm Slater Vecchio that filed the suit, said “the investing public relies heavily on companies and their officers to fairly and accurately represent the affairs of the company.” Those that fail in that should compensate investors for their financial losses, said Jaworski in a news release.
The class action seeks to represent those who bought voting shares of Telus International between Feb. 16, 2023, and Aug. 1, 2024, and still held them during alleged misrepresentations between May 9 and Aug. 1, 2024.
The allegations in the class-action lawsuit have not been tested in court and no response has been filed by Telus International or the individual defendants.