A $434m (£338.9m) recovery has been secured in a securities fraud class action suit against American sportswear brand, Under Armour, in which the North East Scotland Pension Fund (NESPF) acted as lead plaintiff.

As reported by our sister publication European Pensions, the proposed settlement was agreed just weeks before a federal jury trial was scheduled to take place on 15 July, with the pension fund and other investors in the class represented by Robbins Geller Rudman & Dows LLP. The settlement is now subject to court approval.

The case alleged that Under Armour, Inc. and CEO, Kevin Plank, violated US 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.

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

The suit claimed 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 per cent for the first time in 26 quarters. The company also announced the unexpected resignation of its CFO after 13 months in the job. After this news was made public, the price of Under Armour shares fell over 25 per cent.

Commenting on the outcome, a NESPF spokesperson 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.”

Furthermore, Robbins Geller partner and counsel to the lead plaintiff, Mark Solomon, said the win sends a “strong message to the directors and officers of public companies”.

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

If approved by the court, the settlement will be the second-largest-ever securities class action recovery in the United States Court of Appeals for the Fourth Circuit and one of the top 50 largest such recoveries in US history.

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