Sportswear and footwear company Under Armour has received a Wells Notice from the U.S. Securities and Exchange Commission (SEC). The company disclosed on Monday that the notice of possible regulatory actions by the SEC was also sent to two of its executives over the alleged doctoring of its financial statements between the third quarter of 2015 and the fourth quarter of 2016.
The Wells Notice, which informs people or firms of impending enforcement action from the SEC, was reportedly issued on July 22. The notice does not represent a formal charge against the company and its executives. It instead serves as a warning that actions will be taken if no appropriate response is received. The notice is meant to provide the accused person or firm the chance to provide additional information and to explain why the enforcement action should not be brought.
Apart from the company, the notice named Under Armour's former chief executive officer, Kevin Plank, and its current chief financial officer, David Bergman, as subjects of possible regulatory actions.
In its 8-K filing submitted on Monday, the company elaborated that the notice is related to the previously disclosed SEC investigation into its financial reporting practices. The probe had mainly focused on Under Armour's sales reporting following accusations of it falsely bloating its numbers. The company reiterated in the filing that the SEC has not yet concluded that any violations were in fact made by the company or its employees.
Under Armour originally announced in November of last year that it was the subject of two separate federal investigations conducted by the U.S. Justice Department and the SEC over its accounting practices. The company has thus far provided all of the agencies' document requests and is continuing to cooperate with the investigations.
Before 2016, Under Armour had been on a prolonged sales streak that had lasted for 26 consecutive quarters. The average sales growth for those quarters had reached more than 20 percent. Since then, the company has been struggling to return to its former glory and had largely been overtaken by its peers. For its latest reported quarter, Under Armour reported a sales decline of more than 23 percent. The company blamed the onset of the pandemic and the forced store closures for its poor performance.
Following its disclosure, Under Armour's stock prices remained relatively unfazed. The stock had climbed by nearly 2 percent in early afternoon trading on Monday. Under Armour is expected to issue an immediate response to the SEC notice. The company could either contest all of the allegations against it or settle the case.
