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The Securities and Exchange Commission (SEC), which is the primary regulatory of U.S. stock markets, announced a legal enforcement action against Cavco Industries over conduct involving former Cavco Chairman and CEO, Joseph Stegmayer, Daniel Urness, and the company. Cavco issued the following press release on 9.3.2021 which states their response to the complaint. The SEC Complaint – i.e. legal pleadings – and the SEC press release are also presented.
MHLivingNews and our MHProNews sister site have been virtually alone in manufactured housing trade media in reporting on and probing the various aspects of these and several other troubling issues that routinely have ties to a cast of ‘usual suspects’ that are members of the Manufactured Housing Institute (MHI). The reason that this matters to manufactured homeowners, affordable housing seekers, white hat independents and investors that want to do business honestly are many. But as a mini-summary of why this matters, which will be elaborated on further below the Cavco statement and SEC filing, is simple. This legal development supports our years of broader reporting and advocacy against apparently corrupt behavior by specific corporations and nonprofits. It also signals possible opportunities for the financially more vulnerable to be encouraged to understand and then further respond to other predatory or other illegal behavior. There are those who seem to think that new laws are the only way to deal with problems vexing our consumers, affordable housing seekers and ethical professionals. That’s not so. There are existing laws that could be used, as this SEC filing suggests. To the possible case that often traces back to members of the Manufactured Housing Institute and its dominating brands, sources such as Samuel Strommen at Knudson Law is an invaluable resource. Months before this SEC filing, Strommen sounded apt warnings, that were often based on MHLivingNews and MHProNews reporting and analysis.
For crystal clarity, note that presenting the Cavco response to the complaint is shown for balance, and should not be construed as a defense of the company by this publication. But also, in fairness, Cavco’s statements must be presented to provide a complete picture. Note Cavco’s phrasing: “The Company intends to vigorously defend itself against the allegations made by the SEC in the Complaint.” A vigorous defense is not exactly a denial, is it?
CAVCO INDUSTRIES COMMENTS ON SEC COMPLAINT
PHOENIX, AZ, September 3, 2021 – Cavco Industries, Inc. (Nasdaq: CVCO) (“Cavco” or the “Company”) announced today that on September 2, 2021, the Securities and Exchange Commission (“SEC”) filed a civil complaint in the United States District Court, District of Arizona, naming the Company and the Company’s former Chairman, President & Chief Executive Officer, Joseph H. Stegmayer and the Company’s former Chief Financial Officer, Daniel L. Urness as defendants (the “Complaint”).
In summary, the Complaint brings claims against the Company under the antifraud and internal account control provisions of the Securities Exchange Act of 1934 based on alleged trading improprieties during the fall of 2017 resulting in an unrealized gain of $260,459 and allegedly related internal accounting control violations. The SEC seeks an injunction and monetary penalties. The Complaint may be accessed on the SEC’s website at https:// www.sec.gov/litigation/litreleases.htm
The Company intends to vigorously defend itself against the allegations made by the SEC in the Complaint.
About Cavco
Cavco Industries, Inc., headquartered in Phoenix, Arizona, designs and produces factory-built housing products primarily distributed through a network of independent and Company-owned retailers. The Company is one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments, marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny. The Company is also a leading producer of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes built primarily under the Nationwide Homes brand. Cavco’s finance subsidiary, CountryPlace Mortgage, is an approved Fannie Mae and Freddie Mac seller/servicer and a Ginnie Mae mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Our insurance subsidiary, Standard Casualty, provides property and casualty insurance to owners of manufactured homes. Additional information about Cavco can be found at www.cavco.com.##
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MHLivingNews editorial note: while it is not stated in the above or below, there are numerous issues that this SEC pleading does not directly raise. More on that further below. But for now, this is hardly the only item that appears to involve Cavco, Skyline Champion and other MHI member brands.
When various parties are accused of secretly attempting to violate a law that can be described as collusion or a conspiracy. While this does not go into antitrust, RICO, Hobbs Act, or other possible items arguably related to MHI and their dominating member brands, it only helps that thesis; it does not undermine it.
More on those and related concerns following the guts of the SEC complaint, which is linked here as a download.
The SEC Complaint, found here, opens with these points.
SUMMARY 1. This is an insider trading case arising from Defendant Robert Scott Parkhurst (“Parkhurst”) buying shares of Skyline Corp. (“Skyline”) when he was in possession of material, non-public information about an upcoming corporate transaction involving Skyline. Parkhurst also passed tips to two family members who also bought shares in Skyline prior to the public announcement of the corporate transaction. These trades yielded illicit profits of more than $10,000 for Parkhurst and his family members.
- In the fall of 2017, Parkhurst, who was the national sales manager of Skyline at the time, learned in the course of his employment about Skyline’s confidential and nonpublic plans to merge with Champion Home Builders, Inc. (“Champion”). In December 2017, Parkhurst opened a new brokerage account and transferred $10,500 to it, all of which he used to purchase shares of Skyline between December 22 and December 29, 2017. Parkhurst also tipped his father and son, who both purchased Skyline shares on December 26, 2017.
- On January 5, 2018, Skyline announced its merger with Champion. Skyline’s share price increased by 48%, resulting in gains to Parkhurst of over $4,893, his father of $6,100, and his son of $110.
- By engaging in the conduct described in this Complaint, Defendant Parkhurst violated, and unless restrained and enjoined will continue to violate, Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.
NATURE OF THE PROCEEDINGS AND REQUESTED RELIEF
- The Commission brings this action pursuant to Section 21A of the Exchange Act [15 U.S.C. § 78u-1] to enjoin the transactions, acts, practices, and courses of business alleged in this Complaint and to civil penalties and such other and further relief that the Court may deem appropriate pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)].
…Jurisdiction of the SEC outlined…
- Defendant Parkhurst, directly or indirectly, made use of the mails or of the means or instrumentalities of interstate commerce in connection with the transactions, acts, practices, and courses of business described in this Complaint.
DEFENDANT
- Defendant Robert Scott Parkhurst is 54 years old and resides in Granger, Indiana. He was the National Sales Manager of Skyline until he separated from the company in 2018 in connection with the Skyline trading alleged in this Complaint.
RELEVANT ENTITIES
- Skyline Corp. (“Skyline”) was an Indiana corporation with its principal place of business in Elkhart, Indiana, prior to June 1, 2018. Its shares publicly traded on the NYSE
American exchange under the ticker SKY.
- Champion Home Builders, Inc. (“Champion”) was a Delaware corporation with its principal place of business in Troy, Michigan, prior to June 1, 2018.
- Skyline Champion Corp. is an Indiana corporation with its principal place of business in Elkhart, Indiana. Its shares are publicly traded under the ticker SKY on the NYSE.
This new entity was formed on June 1, 2018 by the merger of Skyline and Champion.
FACTUAL ALLEGATIONS
- From 2016 to 2018, Robert Scott Parkhurst was the National Sales Manager of
Skyline, an Indiana-based manufactured home builder.
- In the spring of 2017, Skyline began pursuing merger talks with other manufactured home builders, including Champion. These merger talks were confidential and non-public. Skyline entered into non-disclosure agreements with the potential targets and used code names to refer to them. The existence of these talks was not publicly disclosed until the merger between Skyline and Champion was announced on January 5, 2018.
- Through his work, beginning on or about July 19, 2017, Parkhurst was aware of a potential corporate transaction involving Skyline.
- Parkhurst was involved in due diligence as the talks with Champion progressed, including attending an in-person diligence meeting with the top executives of Skyline and
Champion in October 2017.
- On October 23, 2017, a Skyline executive emailed Parkhurst about the change in control provision of a stock incentive award Parkhurst had received from Skyline, which would be impacted by the contemplated Skyline-Champion merger.
- Parkhurst had a duty to Skyline to keep the information about the potential
Skyline-Champion merger confidential and not use it for his own personal benefit.
- While these merger preparations were taking place, Parkhurst opened a new brokerage account in December 2017 (the “Parkhurst Brokerage Account”).
- On December 18, 2017, Parkhurst transferred $500 into the Parkhurst Brokerage
Account.
- On December 22, 2017, Parkhurst purchased 38 shares of Skyline stock through the Parkhurst Brokerage Account at a cost of approximately $497, representing nearly all the funds in the account at the time.
- On December 26, 2017, Parkhurst transferred $10,000 into the Parkhurst
Brokerage Account.
- On December 26, 2017, Parkhurst purchased 37 shares of Skyline stock through the Parkhurst Brokerage Account at a cost of approximately $484.
- On December 26, 2017, Parkhurst’s father and his son made purchases of Skyline shares through their respective brokerage accounts at a cost of over $13,000. These purchases were made after Parkhurst shared with them material nonpublic information about Skyline.
- On December 29, 2017, Parkhurst purchased 732 shares of Skyline stock through the Parkhurst Brokerage Account at a cost of approximately $9,459, representing nearly all the available funds in the account at the time.
- On January 5, 2018, Skyline announced that it had entered into a merger agreement with Champion. Following this announcement, Skyline’s stock price increased by 48% to close at $19.00 per share.
- After the price rose on the merger news, Parkhurst had a gain of approximately $4,893 on the shares purchased in December 2017.
- Parkhurst’s father and son had gains of over $6,000 after the Skyline-Champion merger was announced.
- Skyline became aware of Parkhurst’s trading in March 2018, after FINRA sent an identification request letter to Skyline. After conducting an internal investigation, Skyline and Parkhurst reached a separation agreement in May 2018.
FIRST CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act and Rule 10b-5(a) & (c)
(against Defendant Parkhurst)
- The Commission realleges and incorporates by reference paragraphs 1 through 29 above.
- Parkhurst was aware of material, non-public information about his employer, Skyline, and its potential merger with Champion from July 2017 up until the announcement of the merger on January 5, 2018. Parkhurst learned this information in the course of his employment at Skyline and had a duty to Skyline to keep the information confidential and not use it for his own personal benefit. In violation of his duty to Skyline, Parkhurst opened a brokerage account and purchased shares of Skyline while in possession of material non-public information about the potential merger with Champion. In further violation of his duty to Skyline, Parkhurst shared material non-public information about Skyline with his father and son, who then also purchased shares of Skyline.
- By engaging in the conduct described above, Defendant Parkhurst, with scienter, by use of the means or instrumentalities of interstate commerce or of the mails, in connection with the purchase or sale of securities: employed devices, schemes, or artifices to defraud and/or engaged in acts, practices, or courses of business which operated or would operate as a fraud or deceit.
- By engaging in the conduct described above, Defendant Parkhurst violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court enter a judgment:
(a) finding that Defendant Parkhurst violated the antifraud provisions of the
federal securities law as alleged herein;
(b) permanently enjoining Defendant Parkhurst from violating Section 10(b)
of the Exchange Act [15 U.S.C. §§ 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5];
(c) ordering Defendant Parkhurst to pay civil penalties under Section 21A of
the Exchange Act [15 U.S.C. § 78u-1]; and
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(d) ordering such other relief as this Court may deem just and proper.
Dated: September 2, 2021
Respectfully submitted,
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
/s/ Daniel O. Blau
Daniel O. Blau (Cal. Bar No. 305008)
Jasmine M. Starr (Cal. Bar No. 259473)
Securities and Exchange Commission
444 S. Flower Street, Suite 900
Los Angeles, CA 90071 … ##
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MHLivingNews: for reader reference, here is the related SEC press release on this developing issue.
SEC Charges Public Company and Former Executives with Insider Trading, Internal Accounting Control Violations, and Misleading an Auditor
Litigation Release No. 25196 / September 3, 2021
Securities and Exchange Commission v. Cavco Industries, Inc., Joseph Stegmayer, and Daniel Urness, No. 21-cv-01507 (D. Ariz. filed September 2, 2021)
Securities and Exchange Commission v. Robert Scott Parkhurst, No. 21-cv-00657 (N.D. Ind. filed September 2, 2021)
The Securities and Exchange Commission announced insider trading charges against Arizona-based Cavco Industries, Inc., and its former CEO, Joseph Stegmayer. It also brought internal accounting control charges against Cavco, Stegmayer, and Cavco’s former CFO, Daniel Urness. The SEC also charged Stegmayer and Urness with misleading Cavco’s auditor about the trading and a related investigation.
According to the SEC’s complaint, filed in the United States District Court for the District of Arizona, Cavco, at Stegmayer’s direction, used material, non-public information obtained through merger discussions with another public company, Skyline Corp., to trade in Skyline securities. Ultimately, Skyline announced a merger with a different company, which increased Skyline’s stock price by 48% and resulted in alleged gains for Cavco of approximately $260,000. Additionally, the complaint alleges that after Cavco received an SEC subpoena concerning the Skyline trading, Stegmayer sold over 11,000 Cavco shares that he personally owned. After news of the SEC investigation and the Skyline trading came out, Cavco’s share price decreased by 23%. The complaint alleges that by selling stock in advance of this news, Stegmayer avoided losses of over $880,000.
In addition, the SEC’s complaint alleges that Cavco failed to devise a system of internal accounting controls sufficient to provide reasonable assurance that its securities trading would be executed in accordance with its board’s authorization, its corporate investment policy, and its securities trading policy, and that Stegmayer and Urness aided and abetted that failure. The complaint further alleges that Stegmayer circumvented and/or failed to implement the few controls that were in place by causing Cavco to trade in shares of Skyline and of other companies that Cavco was interested in acquiring, all without board knowledge. The SEC also alleges that Urness circumvented and/or failed to implement Cavco’s investment policy by setting up a system to fund the trades without informing the board or ensuring the trades complied with that policy. The complaint further alleges that Stegmayer and Urness knowingly misled Cavco’s auditors with respect to the Skyline trading and an ongoing Financial Industry Regulatory Authority (FINRA) investigation into those trades.
The SEC’s complaint alleges that Cavco violated Sections 10(b) and 13(b)(2)(B) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder; that Stegmayer violated Section 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-2(a) thereunder and aided and abetted Cavco’s violation of Section 13(b)(2)(B) of the Exchange Act; and that Urness violated Section 13(b)(5) of the Exchange Act and Rule 13b2-2(a) thereunder and aided and abetted Cavco’s violation of Section 13(b)(2)(B) of the Exchange Act. Without admitting or denying the allegations, Stegmayer consented to the entry of judgment, subject to court approval, that permanently enjoins him from violating the charged provisions, bars him from serving as an officer or director of a public company for 5 years, and orders him to pay a civil penalty of $1.48 million.
The Commission also announced insider trading charges against Robert Scott Parkhurst, an Indiana resident and former national sales manager at Skyline. According to the SEC’s complaint, filed in the United States District Court for the Northern District of Indiana, Parkhurst obtained material, non-public information about Skyline’s merger discussions through his role as national sales manager at Skyline. The SEC alleges that Parkhurst traded on the basis of that material, non-public information and also tipped his father and son. After the merger news was publicly released, Parkhurst had gains of approximately $4,893, and his father and son of $6,210. Without admitting or denying the allegations, Parkhurst consented to the entry of judgment, subject to court approval, that permanently enjoins him from violating the antifraud provisions of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder and orders him to pay a civil penalty of $15,995.
The SEC’s investigation was conducted by Jasmine M. Starr and Lorraine Pearson and supervised by Finola H. Manvelian and Rhoda Chang of the Los Angeles Regional Office. The SEC’s litigation will be led by Daniel O. Blau and supervised by Amy J. Longo. The SEC appreciates the assistance of FINRA in this matter. ##
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Stegmayer was allowed by MHI to continue on as their chairman,
even after the initial SEC probe was announced. Once more, in hindsight,
that speaks volumes. The apparent arrogance at MHI is stunning for those
who see what has been occurring at that trade group for a number of years.
Additional Information, MHLivingNews Analysis and Commentary in Brief
As the headline reminds readers, Cavco’s former Chairman and CEO, Stegmayer, was also MHI’s prior Chairman.
While there are a limited number of apparent connections shown here by the SEC between Cavco and Skyline Champion, both are MHI member brands.
Nearly $1.5 million dollars is not chump change for most Americans. The fact that Stegmayer has, per the SEC: “Without admitting or denying the allegations, Stegmayer consented to the entry of judgment, subject to court approval, that permanently enjoins him from violating the charged provisions, bars him from serving as an officer or director of a public company for 5 years, and orders him to pay a civil penalty of $1.48 million.”
Defense attorneys could argue that this violation does not necessarily mean that there are other violations of the law. But consider this. Stegmayer and Cavco have apparently violated the law and attempted to lie and cover it up. That opens up a range of other issues previously reported by MHLivingNews and/or on our MHProNews sister site. Some of those are linked below.
In cop shows, and in real life, when a ‘person of interest’ or suspect has a
criminal record, or repeated brushes with the law, they are often given more
scrutiny in other investigations by law enforcement professionals.
That principle should be applied to the items linked above and below.
As a disclosure, some years before these allegations, this writer and our manufactured home trade publications interviewed Stegmayer both in written and via video. Stegmayer certainly seemed to be a polite, well spoken, intelligent person. There were at the time no obvious signs spotted of possible illegalities. That said, in hindsight, there are several items that include this SEC allegation, but are not limited to them.
A planned report that will link up this one and provide additional insights is pending. Until then, the recent report linked below is a reminder to those manufactured home community residents, manufactured homeowners, white hat brands, professionals and investors who are not engaged in apparently illegal practices to take heart.
The law exists to protect the people. Objectively, the system certainly seems to be tilted in favor of those who manipulate it. That said, by understanding the issues and pressing public officials, the many can beat the money.
It is not just manufactured housing that is being monopolized to the detriment of the many. We periodically report on the broader issues, but then come back to reveal how those broader patterns impact our profession, homeowners, affordable housing seekers, and authentic vs. faux advocates.
Stay tuned for more. In the meantime, dig into the related reports linked from this article to more fully grasp what has gone wrong in our industry but also America at large.
Seeking solutions? See the letter to a mainstream editor linked below. 500 word executive summary.
We lay out the facts and insights that others are too lazy, agenda-driven, or otherwise uninformed to do. That’s what makes our sister site and this location the runaway leaders for authentic information about affordable housing in general, the politics behind the problems, and manufactured homes specifically. That’s a wrap on this installment of “News through the lens of manufactured homes and factory-built housing” © where “We Provide, You Decide.” © ## (Affordable housing, manufactured homes, reports, fact-checks, analysis, and commentary. Third-party images or content are provided under fair use guidelines for media.) (See Related Reports, further below. Text/image boxes often are hot-linked to other reports that can be access by clicking on them.)
By L.A. “Tony” Kovach – for MHLivingNews.com.
Tony earned a journalism scholarship and earned numerous awards in history and in manufactured housing. For example, he earned the prestigious Lottinville Award in history from the University of Oklahoma, where he studied history and business management. He’s a managing member and co-founder of LifeStyle Factory Homes, LLC, the parent company to MHProNews, and MHLivingNews.com. This article reflects the LLC’s and/or the writer’s position, and may or may not reflect the views of sponsors or supporters.
Connect on LinkedIn: http://www.linkedin.com/in/latonykovach
Recent and Related Reports:
The text/image boxes below are linked to other reports, which can be accessed by clicking on them.
