Lawyers acting for Aberdeen City Council have accused the US Securities and Exchange Commission (SEC) of “neglecting its commitment” to hand over documents to be used in the local authority’s court case against Under Armour.
The council’s legal team alleges the sportswear giant artificially inflated the price of its shares and revenue using "illicit" sales techniques and "a façade of consistent growth", which left it and other investors out of pocket as the value of its stock drastically fell.
Scotland on Sunday revealed last year how the local authority - the lead plaintiff in the class action lawsuit - claims the alleged misconduct by Under Armour resulted in losses of more than £6.5 million for the North East Scotland Pension Fund (NESPF), the pension scheme for more than 70,000 public sector workers across the Aberdeenshire area.
Now, lawyers for the council - which administers the pension scheme - have gone to court in the US to try to force the SEC to comply with a request for paperwork and records relating to its own investigation into Under Armour.
SIlverman, Thompson, Slutkin & White, a law firm based in the Maryland city of Baltimore, has filed a motion at the US District Court of Columbia, which seeks to “compel compliance” with a subpoena issued to the SEC.
The lawyers say the government agency, responsible for regulating the securities markets and protecting investors, has “simply not honoured” its agreement to hand over documents, despite repeated requests over a period of several months.
The council's separate action against Under Armour, filed in the US District Court of Maryland, alleges that Under Armour's "concealed" practices included pulling forward sales from future quarters to artificially boost revenue and hit aggressive sales goals.
It also claims Under Armour's founder and then CEO, Kevin Plank, "personally cashed in" on the artificial inflation of the firm's share price, selling $138.2m (£105m) of his own stock between November 2015 and April 2016 in sales that were "suspicious in timing and amount”.
The NESPF acquired more than £20m worth of Under Armour stock six years ago, but the company’s share price nosedived after it came under investigation by authorities in the US.
The firm, which became a leading global brand name thanks to a series of endorsements with high-profile sports stars including Sir Andy Murray, Anthony Joshua, and Jordan Speith, has previously rejected the allegations as being without merit, and said its disclosures and accounting practices have been "entirely appropriate”.
The latest court action against the SEC claims the agency had deposed various Under Armour employees, including Mr Plank, and one its external auditors.
A memorandum filed alongside the motion reiterates the council is seeking documents about the SEC’s investigation of Under Armour’s accounting policies and practices, including notes of interviews or testimony, and communications between the SEC and the company.
It claims since the subpoena was served on the SEC last July, the agency’s legal team said last October they were “working on it” and “making progress”. Two months later, it adds, the SEC lawyers said the council and its legal team could expect the documents soon.
Since then, however, the SEC had repeatedly failed to respond to emails and telephone calls, the court documents add.
“The SEC has ignored its duties to comply with the subpoena and has neither produced documents nor asserted that it cannot produce comments,” it states.
“To the contrary, the SEC has already ostensibly agreed to produce documents in compliance with the subpoena, and it has for several months simply failed to honour its representations that the requested documents would be produced.”
The memorandum also claims the SEC has not challenged the relevance of the documents requested in the subpoena, and argues that any such challenge would not be “reasonable”.
The council’s legal action against Under Armour has now been ongoing for more than five years.
Last year, the company’s lawyers applied to dismiss the complaint by the council and other plaintiffs. In their motion, they argued the allegations that Under Armour pulled forward orders merely describe "legitimate pull in sales" and do not constitute fraud.
They added in their submission that Mr Plank's sales of his stock were not suspicious, pointing out that it formed part of a publicly announced strategy.
However, Richard Bennett, a district judge in Maryland, ruled last May the council and other investors could pursue the lawsuit.
He said their claims for securities fraud were “plausible”, after taking into account the company’s $9m (£6.8m) civil settlement with the SEC last May.
The SEC said Under Armour had misled investors and failed to disclose “known uncertainties” concerning its future revenue prospects.
Its order said the company had violated the anti-fraud provisions of the US Securities Act.
Under Armour did not admit or deny wrongdoing in settling with the SEC, but Mr Bennett said the development “lent support” to the allegations made by the council and the other plaintiffs.
Aberdeen City Council declined to say how much the legal action against the SEC, or the ongoing action against Under Armour, had cost it to date.
A spokesman said: “We cannot comment on ongoing legal proceedings.”
The SEC and Under Armour declined to comment.
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