N East Scotland Pension leads $434m settlement win

US law firm Robbins Geller Rudman & Dowd LLP announced it secured a $434 million settlement for investors in a securities fraud class action suit against Under Armour and CEO Kevin Plank, on the eve of a federal jury trial.

Under Armour denies any wrongdoing in the case.

North East Scotland Pension Fund (NESPF) in Scotland led the action as lead plaintiff on behalf of investors.

NESPF administers the Local Government Pension Scheme (LGPS) for employees of Aberdeen City Council, Aberdeenshire Council and The Moray Council.

It has assets of over £5.8 billion and 76,000 members.

“The proposed settlement was announced just weeks before a jury trial was scheduled to commence on July 15, 2024 before the Honorable Richard D. Bennett of the United States District Court for the District of Maryland,” said Robbins Geller.

“The settlement is subject to court approval.”

Robbins Geller partner Mark Solomon said: “This is an important win for investors and a strong message to the directors and officers of public companies.

“Prior government enforcement efforts yielded a modest $9 million penalty. Obtaining a recovery almost 50 times greater underscores the critical role pension funds can play in holding companies accountable.”

Robbins Geller said if approved by the court, the settlement will represent the second largest ever securities class action recovery in the Fourth Circuit and one of the top 50 largest such recoveries in U.S. history.

“Our trial team was looking forward to trying the case to a jury. The readiness of our team to try the case and do so effectively was instrumental in helping us obtain this outsized recovery,” said Robert Henssler, Robbins Geller partner and lead trial counsel.

A spokesperson for the North East Scotland Pension Fund said: “We are pleased to have helped secure this exceptional outcome.

“We decided that stepping forward to lead the litigation and hold defendants accountable was an appropriate exercise of our stewardship role, and we welcomed the opportunity to do so.”

Robins Geller said: “The case alleges that Under Armour, Inc. 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 allegations focus on Under Armour’s alleged ‘pull-forward’ revenue recognition scheme that masked declining demand for its products.

“Investors had been repeatedly assured, according to the allegations in the suit, that Under Armour’s 26-consecutive quarter 20% year-over-year revenue growth streak was ‘safely intact,’ when demand for the company’s products was in decline.

“The suit claims that the company’s financial results were manipulated to mask this decline by pulling sales forward from future quarters and other suspect sales practices.

“In 2017, Under Armour revealed its lower than anticipated fourth quarter revenues and a drop in quarterly revenue growth of over 20% for the first time in 26 quarters.

“The company also announced the unexpected resignation of its CFO after only 13 months on the job. After this news was made public, the price of Under Armour shares fell over 25%. The investor suit followed.”

Under Armour said in a statement: “Under Armour, Inc. (NYSE: UA, UAA) today announced that it has entered into an agreement in principle to resolve the previously disclosed securities class action litigation pending in the United States District Court for the District of Maryland (In re Under Armour Securities Litigation). This lawsuit was originally filed in 2017.

“The company has consistently denied the accusations and entered into this agreement in principle, which is not an admission or finding of fault or wrongdoing, given the costs and risks inherent in litigation.

“Under the terms of the agreement, Under Armour will pay $434 million to settle claims brought on behalf of purchasers of Under Armour’s publicly traded shares from September 16, 2015, to November 1, 2019. Under Armour has also agreed to two governance changes for a specified time period that are detailed in the company’s 8-K filed with the SEC.

“The settlement, if approved by the court, would resolve all claims against Under Armour and other defendants in this matter.”

Mehri Shadman, Under Armour’s Chief Legal Officer and Corporate Secretary, said: “We firmly believe that our sales practices, accounting practices, and disclosures were appropriate, and deny any wrongdoing in this case.

“Today’s announcement allows us to move past this more than seven-year-old matter so we can avoid the ongoing distraction of litigation and provide certainty to the business at a time when we are executing on important strategic priorities.”

Under Armour added: “The settlement is subject to definitive documentation and final court approval.

“The company intends to pay the settlement amount through cash on hand and/or by drawing on its $1.1 billion revolving credit facility.

“As of March 31, 2024, the company had $859 million of cash and equivalents. As previously disclosed, Under Armour had recorded an accrual of $100 million in litigation reserves related to this matter.

“As a result of this agreement, the company now expects the total accrual to reach $434 million during the first quarter of fiscal year 2025.

“Following this settlement, the company expects to end fiscal 2025 with approximately $500 million in cash and cash equivalents and no borrowings outstanding under its $1.1 billion revolving credit facility.”