Staff members at the Securities and Exchange Commission are recommending that the agency take enforcement action against Under Armour (NYSE:UA)(NYSE:UAA) for accounting irregularities regarding sales that occurred between the third quarter of 2015 and the fourth quarter of 2016.
The apparel company said company founder Kevin Plank, who is executive chairman and brand chief, and chief financial officer David Bergman received Wells Notices last week from the regulatory agency arising out of its investigation into the company's accounting practices.
A prelude to enforcement
As Under Armour notes in its SEC filing, a Wells Notice is neither a formal charge of criminal conduct nor a final determination that Plank or Bergman violated any law. What it does mean is that the agency has found irregularities that could support bringing a civil action against them, but it's giving the pair an opportunity to provide information that rebuts the allegations.
Last November, Under Armour confirmed that the SEC was investigating whether it had moved sales from quarter to quarter to make the business look healthier than it really was.
If the SEC's accusations are true, that raises the question of just how bad the apparel maker's numbers actually were. Because Under Armour's business has been deteriorating for a while, the numbers it did report during the time being investigated were not good at all.
For its part, Under Armour is steadfast in denying it did anything improper with how it accounted for sales, and said in a statement that it expects "to engage in a dialogue with the SEC Staff to work toward a resolution of this matter."
Under Armour's stock, which initially fell on the news, is down less than 1% in morning trading.