In July, the U.S. Securities and Exchange Commission (SEC) sent Wells notices to Under Armour and two of its executives. The notices of possible enforcement action are part of a probe into the activewear company’s accounting practices, which the SEC claims may have violated securities laws by making sales seem stronger than they actually were.
A Wells notice itself does not necessarily indicate a securities law violation. However, such a notice means that the SEC is considering an enforcement action. Both the former CEO and current CFO of Under Armour also received Wells notices. Under Armour has denied any wrongdoing, and the company has indicated that it will cooperate with the SEC.
The probe goes back some years
The SEC is looking into the timing of Under Armour’s sales between the third quarter of 2015 and the fourth quarter of 2016. Prior to the end of 2016, the company had posted sales growth of more than 20% for 26 straight quarters. However, since the 2016-2017 holiday season, Under Armour has struggled to keep up with competitors like Nike, Reebok and Lululemon. Sales were down 23% in the company’s latest reported quarter, and the COVID-19 pandemic has led to cost cuts of about $325 million.
Under Armour confirmed in November 2017 that the Justice Department and the SEC were investigating the company’s accounting practices for possible violations of federal securities laws.
If your company’s accounting practices are the subject of such a probe, the importance of sound legal counsel cannot be overstated. Discuss your concerns with an experienced securities law attorney before responding to a Wells notice. The securities law attorneys at Ford O’Brien Landy LLP represent clients in New York and Nationwide.
Source: CNBC, “Under Armour reveals receipt of ‘Wells notice’ from SEC over sales probe,” July 27, 2020