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Under Armour’s SEC Resolution Shines Light on Financial Disclosures

Sindhu Sundar
·3-min read

Under Armour’s $9 million settlement with the Securities and Exchange Commission on Monday draws to light the issue of disclosures around the practice of so-called “pull forward” reporting, and how regulators might view it.

The sportswear brand’s resolution with the SEC ends the agency’s charges, and in light of the settlement, it has said it won’t target any individual executives in conjunction with the inquiry.

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The inquiry highlights a reporting practice of pulling forward orders from a later quarter to an earlier one, a practice that’s neither uncommon, nor itself inherently problematic, regulatory experts said. But the issue often boils down to the question of how the “pull forward” practice functioned in practice, and whether it was adequately disclosed.

In this case, the SEC alleged that during a period around 2016, Under Armour had encouraged customers who had ordered shipments of product to agree to receive the products earlier, and offering them incentives including discounts to do so. This practice isn’t by itself problematic, but can become an issue if regulators view the company as using it as a covert strategy to obscure that it is missing financial targets, experts said.

“The issue was, according to the SEC’s documents, that it gave investors the idea that revenue was on track, when really it was only on track because they were giving discounts and incentives on future sales, because current sales had softened,” said Alma Angotti, partner of financial services and global legislative and regulatory risk leader at consulting firm Guidehouse.

“The SEC’s issue is that they were doing this to make the numbers that analysts expected them to make but without saying something like, ‘Look we’re making our revenue numbers, but we had to give discounts to do it, and it is different than it was last year,’” she added. “And the SEC is saying, ‘Well that is material, because your sales are not the same, you’re not making your targets in the way that the analysts and the investors think you are.’”

Under Armour said in its statement Monday that as part of its resolution, it neither admitted nor denied the SEC’s allegations.

Separately, the sportswear company indicated that the U.S. Department of Justice has made “requests for documents” and that the company has been responding to those inquiries. “The company has not received any requests from the DOJ since the second quarter of 2020,” Under Armour said in its statement Monday.

The SEC inquiry and resolution have no bearing on any separate inquiry by the Justice Department.

It’s not unusual for the DOJ to conduct inquiries into the same kind of securities issues first pursued by the SEC. The DOJ tends to view financial inquiries through the lens of its own enforcement mechanisms and statutory provisions, such as wire fraud, mail fraud and conspiracy statutes, said Rohan Virginkar, partner at Foley & Lardner LLP, and a former trial attorney at the DOJ’s fraud section.

“Procedurally, the way that these corporate cases get resolved is that the company presumably will have been working with, cooperating with the government,” Virginkar said, speaking generally about DOJ investigations.

“There are real incentives to corporations under the sentencing guidelines and other DOJ policies that can often result in a pretty significant reduction in your criminal fine or penalty,” he added.

“And so, companies have that incentive to cooperate, which then also means that you’re already engaged with the enforcement authority, as they start to think about resolving the case, and so, if there is a resolution of this case, my guess would be, it would not be through an indictment, but something short of indictment, whether that would be a guilty plea or whether that’s a deferred prosecution, non-prosecution or something else,” he said.

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