On September 3, 2021, the Securities and Exchange Commission charged Cavco Industries, Inc., an Arizona-based producer of manufactured homes, and its former CEO Joseph Stegmayer with insider trading. The SEC charged Cavco, Stegmayer and Cavco’s former CFO Daniel Urness with internal accounting control charges and also charged Stegmayer and Urness with misleading a Cavco auditor regarding company trades and a related but separate FINRA investigation.
According to the complaint, in 2017 Stegmayer obtained material non-public information during merger discussions with Skyline Corp, another manufactured home builder, and directed Cavco to purchase Skyline securities based on that information. When Skyline announced that it was merging with a company other than Cavco, its stock price increased by 48 percent and Cavco made approximately $260,000 in unlawful gains. When Cavco received a subpoena from the SEC related to the Skyline trades, Stegmayer allegedly sold over 11,000 Cavco shares that he personally owned, and when news of the SEC investigation was disclosed, the value of Cavco shares decreased by 23 percent, enabling Stegmayer to avoid losses of more than $880,000.
Cavco, Stegmayer and Urness also allegedly failed to maintain an adequate system of accounting controls for Cavco, devising an investment policy in which Urness was responsible for obtaining the board of directors’ approval before certain Cavco trades could be placed. According to the complaint, Urness willingly circumvented Cavco’s policy by enabling Stegmayer to place trades in violation of the policy on multiple occasions without informing the board as required. As a result of the policy’s weaknesses, the board of directors were not aware of the improper trades until after the SEC subpoena was received. Stegmayer and Urness also allegedly misled an auditor by falsely asserting that Stegmayer’s investments in Skyline and other companies had been approved by the board; denying that any acts of impropriety such as insider trading had occurred at the company; and failing to disclose a FINRA inquiry related to the Skyline trades. According to the SEC’s complaint, the auditor did not learn of the FINRA investigation until after the SEC subpoena was received.
On September 2, 2021, subject to the court’s approval, Stegmayer consented to the entry of a final judgment against him in the US District Court for the District of Arizona without admitting or denying the SEC’s allegations. He also agreed to refrain from any further securities violations, pay a $1.48 million civil penalty, and is also barred from serving as an officer or director of a public company for a period of 5 years.
On September 2, 2021, the SEC also charged Indiana resident Robert Scott Parkhurst, Skyline’s former national sales manager, with insider trading in the US District Court for the Northern District of Indiana for allegedly placing trades ahead of the company’s merger announcement in 2017. Parkhurst allegedly traded based on material, non-public information obtained during merger discussions, then tipped his father and son who also purchased securities ahead of the announcement. When the merger was announced and shares increased by 48 percent, Parkhurst realized almost $5,000 in illegal gains, while his father and son allegedly made more than $6,200 as a result of their trades. Parkhurst also settled with the SEC and, subject to the court’s approval, consented to the entry of final judgment against him without admitting or denying the allegations against him. Under the settlement, Parkhurst agreed not to violate the insider trading provisions of the Securities and Exchange Act and must pay a civil penalty of almost $16,000.