Under Armour has disclosed that its top executives had received notices related to an investigation about its past accounting practices.
The Baltimore-based brand announced today that the Securities and Exchange Commission had sent Wells Notices to the company, as well as founder and executive chairman Kevin Plank and CFO David Bergman, on Wednesday. These letters indicated that Under Armour could face civil-enforcement action regarding the use of “pull forward” sales — or shifting sales between quarterly periods — to meet certain financial objectives.
“Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law,” the sportswear firm clarified. “The Wells Notices informed the company and the executives that the SEC staff has made a preliminary determination to recommend that the SEC file an enforcement action against the company and each of the executives that would allege certain violations of the federal securities laws.”
Its shares subsequently tumbled nearly 5% in premarket hours. As of 9:45 a.m. ET, they were down more than 1.3% to $10.76. (The company’s stock has fallen about 50% in the year to date.)
According to the filing, the Wells Notices had stemmed from disclosures that Under Armour made about its third quarter in 2015 and fourth quarter in 2016. Late last year, the company confirmed that it was the subject of a two-and-a-half-year federal investigation surrounding its accounting procedures. Securities officials, as well as the Department of Justice, had been looking into whether the company manipulated sales numbers to appear healthier.
News of the investigation was followed by an explosive Wall Street Journal report in November that detailed allegations that Under Armour “pushed early shipments” and “dumped goods at off-price chains” in an effort to boost revenue growth. That report prompted Plank — who announced in October his plans to hand over the CEO post to Patrik Frisk at the start of 2020 — to speak out in defense of the brand.
In today’s 8-K filing, the company said that it maintains its actions were “appropriate” and intends to “pursue the Wells Notice process,” which includes the opportunity to respond to the SEC staff’s position and “work toward a resolution of this matter.”