Under Armour to Pay $434 Million in Class Action Settlement for Manipulating Sales Data

Under Armour, the sports apparel manufacturer, has agreed to pay $434 million to settle a class action lawsuit that accused the company of manipulating sales data. The lawsuit, which was originally filed in 2017, alleged that Under Armour falsely claimed strong consumer demand for its products between 2015 and 2016 when, in reality, demand was declining.

The U.S. Securities and Exchange Commission (SEC) investigated the matter and found that Under Armour had engaged in a practice known as “pull forward,” where future orders were added to earlier quarters to boost sales numbers. This inflated the revenue numbers for those quarters and deceived investors. The SEC claimed that Under Armour had engaged in this tactic for six consecutive quarters starting in the third quarter of 2015.

In the class action lawsuit, plaintiffs argued that the pull forward scheme masked a declining demand for Under Armour’s products. The settlement, if approved by the court, will be one of the 50 largest class action recoveries in American history.

As part of the settlement, Under Armour will pay $434 million to plaintiffs who bought the company’s shares between September 2015 and November 2019. The company has also agreed to two governance changes. Firstly, it will continue to separate the roles of Chair and Chief Executive Officer for three years after the settlement is approved. Secondly, all stocks granted to top executives during this period will have a performance-based vesting condition.

Under Armour has denied any wrongdoing, stating that its sales practices, accounting practices, and disclosures were appropriate. The company hopes that this settlement will allow them to move past the distraction of litigation and focus on important strategic priorities.

According to the SEC, Under Armour’s revenue growth forecasts for the second half of 2015 were falling short of analysts’ expectations. To meet these expectations, the company allegedly added $408 million in existing orders to future quarters over a period of six consecutive quarters. This resulted in inflated revenues for the affected quarters. The SEC accused Under Armour of misleadingly attributing its revenue growth to various factors without disclosing the impacts of its pull forward practices.

In addition to the class action lawsuit, Under Armour agreed to pay the SEC $9 million to settle the charges related to the pull forward scheme. The company plans to pay the $434 million settlement using cash and its credit facility.

The settlement comes just weeks before a scheduled jury trial on the case. If approved, it will be a significant victory for investors and send a strong message to directors and officers of public companies. The lead plaintiff in the class action lawsuit, the North East Scotland Pension Fund, views this settlement as holding companies accountable for their actions.