Between 2015 and 2017, Under Armour had three CFOs.

Long-term Chief Financial Officer Brad Dickerson was still presiding in the role in 2015, where he had served since 2008. When he left early in 2016, he was replaced by Chip Molloy, who stayed barely a year before leaving for "personal reasons," according to the company.

His departure came the same day the brand announced a significant slowdown in net sales growth — from an average of more than 20% to just shy of 6%. He was replaced by David Bergman, a veteran of the company who had been at Under Armour in some capacity since 2004.

The lack of stability in that role looks different now in the wake of the news that there is an investigation by the Securities and Exchange Commission into Under Armour's accounting practices. The Wall Street Journal in early November broke the news that Under Armour was under investigation by the SEC and the Justice Department for shifting sales from quarter to quarter to "appear healthier."

Since then, the company has addressed the investigations in an earnings conference call with analysts, saying executives "firmly believe that our accounting practices and disclosures were appropriate," but adding that they were prohibited from providing more details on the matter. 

Until more details about the investigation come out, it's hard to predict what will ultimately happen to Under Armour. But the investigation itself bears watching to discern what the probe is searching for, what could happen if something is found and to what extent the sales management practices that have been mentioned are just part of retail.

Red flags

Under Armour has so far remained steadfast in its belief that the company's accounting practices were appropriate. A company spokesperson told Retail Dive in an emailed statement that the company's board of directors and management team have "reviewed this matter extensively over the past two and a half years" and that, because the investigation is ongoing, it "cannot address every allegation raised in the media or by anonymous sources cited in the news."

The lack of detail now is coupled with flak the company received for not publicly disclosing the investigation in the first place, but Under Armour isn't legally obligated to do that, according to Daniel Taylor, an associate professor at the University of Pennsylvania's Wharton School of Business. When allegations are serious, it's not unusual to decide not to publicly share that an investigation is underway.

"No one says, 'Hey, we're under investigation for child pornography, but we're completely innocent,'" Taylor said in an interview, "Just the notion that you're under investigation, even if you are truly innocent, suggests that there's something not quite right."

However, the abrupt departure of a CFO around the timeframe the retailer is being investigated does raise red flags, according to Taylor.

"They bring in somebody, he looks at the books and says, 'I'm out of here,'" Taylor said, noting that experiencing a lot of fast turnover in the CFO role is uncommon. "It is typically associated with some level of complex slash questionable accounting."

A more recent report by The Wall Street Journal noted that Chip Molloy's short tenure was also part of the investigation, in addition to concerns over the retailer's alleged practice of shifting sales from one quarter to another.

The resignation of CEO Kevin Plank adds another layer of concern, if only because of how swiftly after the announcement The Wall Street Journal report came. The company has stressed that the CEO turnover was part of a planned succession, and a personal choice of Plank's.

Outside of the executive shuffling, the investigation will likely be looking for certain signs of "channel stuffing" (the practice of sending retailers more product than they are likely to be able to sell to the public), said Karen Brenner, executive director of law and business at New York University's Stern School of Business. 

"There's going to be a question of whether they're pulling sales from later periods into earlier periods, whether they are legitimate sales that should have been pulled forward and whether or not those sales are going to stick, i.e., is the customer not going to just throw this stuff back in the company's face after the end of the quarter?" Brenner said in an interview.

To determine that, another topic for investigation would likely be whether Under Armour's sales were "arm's length sales" — or, in other words, legitimate business deals where one party isn't trying to pressure the other into accepting an unfair deal.

"If the goods are coming back, but you get to make the sale in the quarter and the return is in the next and you book the return and hope people don't recognize it, that's troubling," she said. "If a customer says, 'Sure, I'll take the good. I want you to agree that if I don't sell X amount in Y period of time, you'll give me some credit against it,' that may be a legitimate business decision that's correctly booked. So it really depends upon the facts and circumstances surrounding the transactions and that's what the investigation will unearth."

Just part of the business?

In The Wall Street Journal's most recent report, the publication talked to multiple former executives who said Under Armour "frequently leaned on retailers to take products early and redirected goods intended for its factory stores to off-price chains to book sales in the final days of a quarter."

And while that may not be a sign of a healthy company, it may not be a sign of illegal activity, either. In this case, it's the difference between real earnings management and illegal earnings management or accounting fraud, Taylor said. Plenty of retailers try to boost their numbers at the end of the quarter, and Brenner added that it frequently happens at companies that are "pressed to meet numbers."

Retail is an industry full of companies trying to meet numbers.

Under Armour is no exception, and even acknowledged similar end-of-quarter practices, taking care to note that the brand's practices for recognizing revenue have "always been in compliance with generally accepted accounting principles."

"For many years, quarterly shifts in wholesale revenue related to timing of shipments based on financial goals; customer requests; year-to-year seasonal variance; different fiscal calendar alignments; product availability; logistics; and numerous other dynamics have been, and continue to be, part of the normal course of business practices in the apparel, footwear and retail sector," a spokesperson told Retail Dive in an email.

The problematic part would be if the company is reporting sales that didn't actually occur, Taylor said, something The Wall Street Journal questions, citing a former logistics executive who said "truckloads of unopened boxes" would make their way back to Under Armour. 

The involvement of the Justice Department suggests the SEC thinks it has a criminal case against Under Armour, Taylor noted, and shareholders think they have a case as well.

A class-action lawsuit was filed shortly after the news broke requesting damages for anyone who bought shares between August of 2016 and November of this year. It's not the first time shareholders have filed a lawsuit questioning the discrepancy between the company's projected growth and it's actual growth. Another was filed in February of 2017 claiming the brand "made false and/or misleading statements as well as failed to disclose material adverse facts about the company's business, operations and prospects."

"You have this Justice Department probe and SEC probe for accounting fraud," Taylor said, adding that moving through three CFOs in a short period of time and having the CEO step down doesn't improve the situation. "That's a lot of smoke. It's not a fire. At some point, you start to wonder what exactly is going on."

In the midst of all that smoke, Taylor did point to the fact that executives have not been selling "abnormal" amounts of shares during the investigation timeframe, which could be a good sign.

Plank has continued to defend the company's business practices to employees, saying it is "disappointing to have our integrity and reputation called into question," according to a memo CNBC acquired. A spokesperson added that, "Under Armour has become one of the world's largest athletic performance brands through industry-defining innovation, ambitious and driven leadership, and a culture that holds itself to the highest standards of integrity."

Only time will tell what the investigation will unearth, and how severe the consequences will be, which could include fines or jail time, according to Taylor. The biggest threat, though, could be the brand's survival.

"If there is something going on there, you just hope it's not so big as to destroy the company," Taylor said. "A fraud brought down Enron — a single accounting fraud."