BALTIMORE (CN) — Days after Under Armour CEO Kevin Plank praised President Donald Trump, a class of shareholders took the spiraling sportswear company to court, saying Plank’s massive divestment of personal stock belies the glowing forecasts that just unraveled.
Plank spoke well of the new president in a Feb. 7 interview with CNBC. He said Trump, who recently pegged Plank to serve on his manufacturing advisory panel, was “a real asset for the county.”
Dow Chemical CEO Andrew Liveris, Dell Technologies CEO Michael Dell and Tesla founder Elon Musk will serve on the same panel. Though these companies have seen shares go up, Under Armour’s stock price has been in freefall for weeks.
Compounding the bad news of weaker-than-expected fourth-quarter earnings, Under Armour also announced on Jan. 31 the impending departure of Chief Financial Officer Lawrence “Chip” Molloy, despite having served in the position for just 13 months.
Shares dropped 28 percent that day, from $28.94 to $21.49, and are still sinking.
As laid out in a Feb. 10 federal class action against the clothier, “that very day, approximately $2.7 billion, or one fifth of Under Armour’s market capitalization, vanished.”
Brian Breece, a resident of Georgia, filed the complaint in Baltimore, where Under Armour is based.
He says a review of Under Armour’s securities filings, media reports and other materials show that Plank in particular knew that the company was in trouble but intentionally misled shareholders about Under Armour’s financial well being.
“Despite outward votes of confidence and assurances to plaintiff and the rest of the investing public that Under Armour would continue as a force in the sports retail market, defendants, and Plank in particular, were aware of the decreasing growth margins and over surplus of unsold inventory, and knew that would be the last of twenty-six consecutive quarters with greater than 20% revenue growth,” the complaint states. “This is precisely why Plank implemented the prearranged stock trading plan, as well as selling off 1.05 million shares in April 2016, to effectively shield his losses but to keep his voting power. Defendants were preaching of Under Armour’s strong guidance and outlook, but Plank was doing everything he could to sell his shares and stave off personal losses.”
Under Armour disputed the allegations, saying in a statement that the complaint lacks merit. “Under Armour will vigorously defend the case,” a company spokesman added.
As laid out in Breece’s complaint, however, Plank saw the writing on the wall for Under Armour after one of its largest retail partners, Sports Authority, filed for bankruptcy last year.
“Defendants made false and misleading statements and failed to disclose that Under Armour’s revenue and profit margins would not be able to withstanding (sic) the heavy promotions, high inventory levels and ripple effects of numerous department store closures and bankruptcy of The Sports Authority, but nevertheless purported itself as a growth company that would continue to develop and market game-changing products,” the complaint states.
Around the same time that Plank and Molloy were touting the company’s ability to maintain growth rates of at least 20 percent, according to the complaint, Plank was selling off his personal stock holdings in the company while still holding on to his controlling voting rights.
One of Plank’s stock sales, conceived in August 20116 but not announced until September, was valued at more than $81 million, Breece says.
Breece wants to represent a class of investors who bought shares of Under Armour between April 21, 2016, and Jan. 30, 2017.
Under Armour did not immediately respond to a request for comment on the litigation.
The company did, however, release amid fallout over Plank’s role in the Trump administration. Though Under Armour criticized Trump’s recent ban against certain Muslim immigrants, it said Plank will proudly help the president work on job creation. “Under Armour and Kevin Plank are for job creation and American manufacturing capability,” the company said. “We believe building should be focused on much needed education, transportation, technology and urban infrastructure investment. We are against a travel ban and believe that immigration is a source of strength, diversity and innovation for global companies based in America like Under Armour.”
Plank’s praise of Trump drew swift condemnation from several athletes whom Under Armour looks to for endorsements, chief among them Stephen Curry of the Golden State Warriors.
As to Plank’s hailing of Trump as an asset, the two-time NBA MVP told the Mercury News: “I agree with that description if you remove the ‘et’ from asset.”
Late last year, Under Armour lost nearly $600 million of its value when it announced poor sales of Curry 3, a shoe named for the player.
Plank’s remarks also earned rebuke from wrestling star Dwane “The Rock” Johnson and Misty Copeland, the American Ballet Theatre’s first black female principal dancer.
The class suing Under Armour is represented by Charles Piven of Browers Piven in Stevenson, Maryland.