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Phoenix home manufacturer ordered to pay $1.5M in SEC settlement

Thursday, September 29, 2022   /   by Juan Grimaldo

Phoenix home manufacturer ordered to pay $1.5M in SEC settlement

A federal judge recently approved a settlement between the Securities and Exchange Commission and Phoenix-based Cavco Industries Inc. (Nasdaq: CVCO) over allegations that the company participated in insider trading under the direction of its former CEO.

A final judgement for the civil complaint that the SEC filed against Cavco in 2021 said the home manufacturer, without admitting or denying the allegations, has to pay a civil penalty of $1.5 million to the SEC within 30 days after the final judgement is filed.

The Sept. 23 filing also mandates that Cavco cannot directly or indirectly violate the antifraud and internal accounting control provisions of the Securities Exchange Act of 1934.

Cavco recently reported the settlement update and said that this resolves all claims in action against the company. Daniel Urness, Cavco's former CFO, is the remaining defendant in the ongoing action, the company said. Former CEO Joseph Stegmayer settled SEC claims last year.

"After working to resolve this matter for an extended period of time, we are very happy to have reached a settlement on reasonable terms," said President and Chief Executive Officer Bill Boor, in the company's filing.

Cavco rebranded in wake of investigation

The SEC filed the complaint in the U.S. District Court of Arizona last year against the company and its two former executives for alleged insider trading, resulting in an unrealized gain of $265,000, and accounting control violations by misleading the company's auditor in 2017.

Amid the SEC investigation and complaint against the company in 2021, Cavco announced it was rebranding its company and hiring new executives to replace the former CEO and CFO. Stegmayer was CEO from 2003 until 2018, when he was removed from the role, while Urness resigned in February of 2021.

According to the initial complaint, Cavco purchased shares in another public company, Indiana-based Skyline Corp., while it was in merger talks in 2014 with Cavco and other potential acquirers. Through a nondisclosure agreement, Cavco received material, nonpublic information about Skyline. Stegmayer, on behalf of the homebuilding company, then traded in Skyline shares based on that information, the complaint alleges.

After Cavco purchased Skyline shares, Skyline announced a merger with another company, Michigan-based Champion Home Builders, at a price “substantially above” its then-current share price. The news increased Skyline’s stock price by nearly 50%, resulting in gains for Cavco of about $260,000, according to the complaint.

In its most recent earnings report for the first quarter of fiscal year 2023, Cavco said it had record-breaking net revenue of $588 million, an 83.4% increase from $330 million in the year-earlier quarter. It also said its factory utilization increased to more than 85%, a record level over the past decade, and that its backlogs were $1 billion by the end of the quarter on July 2, up $206 million from a year ago.

"All of our operations had another very successful quarter, highlighted by achieving greater than 85% capacity utilization in our production plants. In an environment of rising interest rates and general inflation, we remain very well positioned. With the extreme housing shortage facing our country, the benefits of factory-built solutions and the need for what we do have never been greater," Boor said of the company's most recent earnings report in a statement.

Cavco's share price, which closed at $214.31 on Wednesday, is down about 31% year-to-date. Follow the stock here.

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Written by   –  Reporter, Phoenix Business Journal.
The Grimaldo Group
Juan Grimaldo
2403 N Pebble Creek Pkwy #101
Goodyear, AZ 85395

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