News June 24, 2024
Under Armour To Settle Lawsuit Alleging Fraud for $434 Million
Shareholders accused the apparel maker and its CEO of intentionally misleading investors about the strength of the publicly traded company’s sales.
Under Armour has agreed to pay $434 million to settle a class action lawsuit brought by investors who accused the publicly traded athletic apparel company of deceiving shareholders in an effort to make the firm’s sales seem stronger than they were.
A filing with the U.S. Securities and Exchange Commission (SEC) indicated that Under Armour, whose products sell at retail and in the promotional products market, will pay the money using cash on hand and by drawing on its $1.1 billion revolving credit facility. As of March 31, Under Armour had $858.7 million in cash and cash equivalents.
A federal judge still needs to approve the settlement. A trial had been scheduled for July, but will no longer be going forward.
“This is an important win for investors and a strong message to the directors and officers of public companies,” said attorney Mark Solomon of the firm Robbins Geller Rudman & Dowd, who was representing the lead plaintiff on the case.
Filed in 2017, the lawsuit alleged 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 suit accused Under Armour of a revenue recognition scheme that masked declining demand for its products. In effect, the company manipulated financials results by pulling sales forward from future quarters and other suspect sales practices, the lawsuit said.
In 2021, Under Armour reached an agreement with the SEC to pay $9 million in relation to a separate legal case tied to the purported misdeeds. The alleged practice of pulling sales forward occurred for six consecutive quarters starting in the third quarter of 2015, the SEC said at the time.
While agreeing to settlements, Under Armour has neither admitted nor denied any wrongdoing. Plank isn’t facing any enforcement actions from the SEC.
In addition to the $434 million payout tied to the settlement with shareholders, Under Armour has agreed to continue to separate the roles of board chair and chief executive officer for a period of at least three years.