Several years ago, on May 3, 2021, the SEC announced a settled enforcement action against Under Armour, Inc. The starting point for this case was a 23% stock price drop when Under Armour disclosed that their revenue growth rate, historically over 20%, had fallen to 12% for the fourth quarter of 2016. According to the SEC’s Accounting and Auditing Enforcement Release, the company used sales “pull forwards” to hide this slowing revenue growth rate from mid-2015 to the end of 2016. The company paid a $9 million civil penalty and entered into a cease-and-desist order.
In this kind of case the SEC’s enforcement is usually only part of the story. In a Form 8-K filed on June 20, 2024, more than three years after the SEC action, the company reported a settlement in related class action litigation:
Item 8.01. Other Events.
As previously disclosed, since early 2017 Under Armour, Inc. (the “Company”) has been engaged in securities class action litigation in the United States District Court for the District of Maryland (the “District Court”) under the caption In re Under Armour Securities Litigation, Case No. 17-cv-00388-RDB (the “Consolidated Securities Action”). The complaint asserted claims regarding the Company’s disclosures and accounting practices in connection with its sales between the third quarter of 2015 and the fourth quarter of 2016, specifically asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), against the Company and Mr. Plank and under Section 20A of the Exchange Act against Mr. Plank.
On June 20, 2024, the Company and Mr. Plank entered into a Memorandum of Understanding (the “MOU”) with plaintiffs containing the material terms of a settlement resolving the Consolidated Securities Action. The parties intend to prepare a formal stipulation of settlement describing the terms of the proposed settlement, which will be presented to the District Court for preliminary approval in the coming weeks. Following preliminary approval of the proposed settlement by the District Court and a notice and review period for Class members, plaintiffs will seek final approval of the proposed settlement from the District Court. The settlement is not an admission of fault or wrongdoing by the Company or Mr. Plank.
The MOU provides that the Company will pay or will cause to be paid an amount equal to $434 million to the members of the class in the Consolidated Securities Action, which includes all persons and entities who purchased or otherwise acquired Class A and Class C common stock of Under Armour between September 16, 2015 and November 1, 2019(subject to certain exclusions) (the “Class”). As of March 31, 2024, the Company reported $858.7 million of cash and cash equivalents on its consolidated balance sheets, and no drawings on its $1.1 billion revolving credit facility.
As always, your thoughts and comments are welcome!