Lawsuit filed against Under Armour, Plank
Accounting practices cited by shareholder in action
An Under Armour shareholder has filed a lawsuit accusing company leaders of accounting irregularities and of failing to tell investors about a federal investigation of those practices for more than two years.
Plaintiff Dale Olin, a stockholder from New Jersey, filed suit Tuesday in U.S. District Court in Baltimore on behalf of Under Armour.
The lawsuit accuses current and former executives and board members of breaching responsibilities to shareholders by failing to follow accepted accounting practices used to tally sales and by misleading investors about the sports apparel maker’s performance.
“These wrongs resulted in damages to [Under Armour’s] reputation, goodwill, and standing in the business community,” the lawsuit said. “These actions have exposed the company to hundreds of millions of dollars in potential liability for violations of federal law.”
Under Armour disclosed investigations by both the Security and Exchange Commission and the U.S. Department of Justice in November. Federal officials escalated their investigation in July at a time when the Baltimore-based brand was struggling with worsening losses amid coronavirus-related store shutdowns.
SEC staff issued warnings known as “Wells Notices” to the company, founder and executive chairman Kevin A. Plank, and David E. Bergman, the chief financial officer, on July 22. The notices recommend the SEC file an enforcement action against the company and executives alleging violations of federal securities laws.
Such notices are not formal charges of wrongdoing nor final determinations of any violations.
At the time, Under Armour said its accounting actions were “appropriate” and said it would respond to SEC staff as part of the Wells Notice process. Under Armour did not respond Tuesday to a request for comment about the shareholder lawsuit.
Besides Plank and Bergman, the lawsuit lists as defendants Under Armour CEO Patrik Frisk, a former chief financial officer and eight Under Armour board members. It seeks damages and corporate governance reforms.
Under Armour had grown rapidly, with sales soaring more than 20 percent each quarter for more than six years through the end of 2016.
Last November, the company acknowledged that it had been responding to federal accounting probes since 2017. By then the brand was struggling with slumping sales, steep losses and a decimated stock price.
Federal officials reportedly have been looking into whether the company manipulated its sales numbers to make them appear stronger.
The lawsuit said that after Under Armour executives disclosed the investigations, shares lost nearly 19 percent of their value in one day, closing at $17.14 each on Nov. 4. Its shares closed Tuesday at $10.25 each.
The complaint, which covers the period from Aug. 2, 2016, to Nov. 5, 2019, says the investigations could lead to substantial criminal and civil fines and penalties.