Under Armour agrees to $434m settlement amid shareholder lawsuit
The suit claimed that the company’s financial results were manipulated to mask this decline by pulling sales forward from future quarters and other suspect sales practices
Sportswear brand Under Armour has agreed to a $434m (£342.7m) settlement in a 2017 shareholder lawsuit.
The case alleges that Under Armour and CEO Kevin Plank violated U.S. securities law by making materially false and misleading statements and failing to disclose adverse information about Under Armour’s business and operations to investors.
The allegations focussed on Under Armour’s alleged “pull-forward” revenue recognition scheme that masked declining demand for its products.
In 2017, Under Armour revealed its lower than anticipated fourth quarter revenues and a drop in quarterly revenue growth of over 20% for the first time in 26 quarters.
The company also announced the unexpected resignation of its CFO after only 13 months on the job. After this news was made public, the price of Under Armour shares fell over 25%. The investor suit followed.
Investors had been repeatedly assured, according to the allegations in the suit, that Under Armour’s 26-consecutive quarter 20% year-over-year revenue growth streak was “safely intact,” when demand for the company’s products was in decline.
The suit claimed that the company’s financial results were manipulated to mask this decline by pulling sales forward from future quarters and other suspect sales practices.
The company has consistently denied the accusations and entered into this agreement in principle, which is not an admission or finding of fault or wrongdoing, given the costs and risks inherent in litigation.
On the eve of a federal jury trial, Robbins Geller Rudman and Dowd LLP secured a $434m (£342.7m) recovery for investors in a securities fraud class action suit against Under Armour and Plank.
Alongside the payment of $434m (£342.7m) to settle claims brought on behalf of purchasers of Under Armour’s publicly traded shares from 16 September 2015, to 1 November 2019, the group has also agreed to two governance changes for a specified time period that are detailed in the company’s 8-K filed with the SEC.
North East Scotland Pension Fund led the action as lead plaintiff on behalf of the investor class.
The proposed settlement was announced just weeks before a jury trial was scheduled to commence on 15 July 2024 before the Honourable Richard D. Bennett of the United States District Court for the District of Maryland.
The settlement, if approved by the court, would resolve all claims against Under Armour and other defendants in this matter.
Mehri Shadman, Under Armour’s chief legal officer and corporate secretary, said: “We firmly believe that our sales practices, accounting practices, and disclosures were appropriate, and deny any wrongdoing in this case. Today’s announcement allows us to move past this more than seven-year-old matter so we can avoid the ongoing distraction of litigation and provide certainty to the business at a time when we are executing on important strategic priorities.”
A spokesperson for the North East Scotland Pension Fund, which served as lead plaintiff for the class of investors, added: “We are pleased to have helped secure this exceptional outcome. We decided that stepping forward to lead the litigation and hold defendants accountable was an appropriate exercise of our stewardship role, and we welcomed the opportunity to do so.”
