The former chief compliance officer of Cavco Industries has been charged by the Securities and Exchange Commission (SEC) with internal accounting control failures and for misleading the Arizona-based manufactured home company’s auditor regarding an insider trading matter.
Daniel Urness was Cavco’s chief financial officer from 2005-18, in addition to serving as CCO from at least 2014 to August 2018. He is charged with aiding and abetting the company’s violation of securities laws. The SEC is seeking permanent injunctive relief and civil penalties in the case.
According to the SEC’s complaint, filed Sept. 2 in the U.S. District Court for the District of Arizona, Cavco, at the direction of then-CEO Joseph Stegmayer, “used material, non-public information obtained through merger discussions with another public company, Skyline Corp., to trade in Skyline securities.” When Skyline went on to merge with another company, its stock price jumped, “resulting in gains for Cavco of approximately $260,000 for the Skyline shares it had purchased based on material, non-public information.”
Compliance failures: Cavco had an investment policy that required advanced disclosure of stock trading to its board of directors, according to the SEC. As CFO and CCO, Urness was responsible for reviewing and approving any exceptions to the policy.
“Instead of fulfilling that duty, Urness circumvented the investment policy by setting up a system to fund the trades without informing the board or ensuring the trades complied with Cavco’s policies,” the SEC complaint stated.
The company also had a policy to prohibit insider trading that allegedly went ignored.
“Cavco failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that transactions would be executed in accordance with management’s general or specific authorization, including its board’s authorization, corporate investment policy, and securities trading policy,” the SEC’s complaint stated. “Cavco also failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that access to assets would be permitted only in accordance with management’s general or specific authorization.”
Stegmayer and Urness also misled Cavco’s auditor concerning the Skyline trading and a related investigation by the Financial Industry Regulatory Authority in 2018, according to the SEC. The auditor would learn of the alleged misconduct after Cavco was subpoenaed by the SEC in fall 2018.
Urness left Cavco in February 2021 upon receiving a Wells Notice from the SEC indicating he could face enforcement in the matter.
Stegmayer agreed to a settlement with the SEC ordering him to pay a civil penalty of $1.48 million and barring him from serving as an officer or director of a public company for five years. He neither admitted nor denied the charges.