The North East Scotland Pension Fund (NESPF) has secured a $434m (£338.9 million) recovery from Under Armour in a landmark US securities fraud class action suit.

Background

NESPF, which is part of the Local Government Pension Scheme (LGPS) in Scotland and which administers pensions for 71,000 staff at Aberdeen, Aberdeenshire and Moray Councils, is reported to have had around £6m invested in Under Armour, a US sportswear company. 

Under Armour is based in Baltimore, Maryland. It is listed on the New York Stock Exchange (NYSE) and has a market cap of $3bn (£2.3bn).

However, following NESPF accusing Under Armour of making false statements about its products and of “alleged ‘unethical practices’”. NESPF has been acting as the lead plaintiff in a class action against Under Armour (a class action  is a type of lawsuit where one pursuant lodges a claim on behalf of a larger group of people who have suffered a similar loss). 

The lawsuit, filed in the US District Court for the District of Maryland, alleged that Under Armour and its CEO, Kevin Plank, violated US securities laws by making false and misleading statements and failing to disclose adverse information about the company to investors. 

The sportswear brand had previously said the legal challenge was "without merit" and it would defend the lawsuit "vigorously".

Outcome

The settlement agreement was reached just weeks before a federal jury trial was scheduled to commence. 

A statement on the company's website said it had consistently denied the accusations and had "entered into this agreement in principle, which is not an admission or finding of fault or wrongdoing, given the costs and risks inherent in litigation".

However, the statement confirms that the company will pay $434m to settle claims brought on behalf of purchasers of the company's publicly-traded shares from 16 September 2015 to 1 November 2019.

 A spokesperson for NESPF commented:

“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”.

Comment 

We have previously written about the increase in pension schemes (and indeed public service pensions schemes who may have more financial appetite to do so) holding companies to account, following the settlement secured by Norfolk Pension Fund with Apple. 

This landmark settlement is further evidence of the critical role pension funds play in ensuring companies are held to account by their investors and the wider market. It will be interesting to see whether there will start to be a noticeable upward trend in litigation being pursued by pension funds against large corporations, whether that is in relation to this type of claim or ESG/climate change type issues (of which there have been a number of significant cases already).  
It is also possible that cases like this involving the LGPS, may only serve to power the new (and previous) government’s drive for LGPS funds in particular, to invest locally and nationally, rather than in overseas markets. 

If you would like to discuss any aspect of this case, please do not hesitate to contact your usual Burges Salmon pensions contact, or Michael Hayles, pensions partner and public sector pensions lead.

Written by Harvey Spencer