Did Under Armour Fudge Its Numbers? SEC Is Investigating And Sends Kevin Plank A “Wells Notice”

Shares of Under Armour UAA fell before Monday’s open after the company said it received a ‘Wells notice’ from the SEC over its its sales practices. On July 22, 2020, Under Armour and two top executives – Kevin Plank and David Bergman – received a Wells Notice from the SEC over a previously disclosed probe by the SEC, according to an 8-k filing. The company reiterated that its actions were “appropriate” and it intends “to work toward a resolution” with the SEC.

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The Notice

The SEC’s investigation was looking into the timing of the company’s reported sales. The notice does not mean any laws were definitively broken just that the SEC is considering enforcement action. “The SEC Staff has not alleged any revenue recognition or other violations of generally accepted accounting principles relating to that or any other period,” the company said in the filing. “The Wells Notices informed the Company and the Executives that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the Executives that would allege certain violations of the federal securities laws.”

What Is A Wells notice?

“A “Wells Notice” is a letter sent by a securities regulator to a prospective respondent, notifying him of the substance of charges that the regulator intends to bring against the respondent, and affording the respondent with the opportunity to submit a written statement,” according to Cornell Law School.

Typically, a Wells notice is sent after the SEC has concluded an investigation and intends to bring an enforcement action against the recipient(s). A Wells notice usually means that the investigation showed that the recipient(s) should be charged with violation of securities law(s). Moreover, the notice indicates that the SEC has determined it may bring a civil action against a person and/or the firm. The recipient is generally given 30 days to file a response in the form of a legal brief considering legal and factual arguments as to why no charges should be brought against them.

Under Armour Earnings Preview:

The company is set to report earnings before Friday’s open. The Street is expecting the company will report a loss of ($0.39)/share on $567.50 million in revenue.

Bottom Line:

At this point, it is not the end of the world, just something that should be front and center on your radar as the story develops if you’re interested in the stock.

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