Do Looming Shareholders Suits Against Cavco Industries Foreshadow Problems for More Manufactured Home Industry Publicly Traded Firms?


The headline question, according to a manufactured home industry attorney familiar with the issues, says what attorneys often do. “It depends.”

Under the headline, “RM LAW Announces Class Action Lawsuit Against Cavco Industries, Inc.” one reads the following.

RM LAW, P.C. is a national shareholder litigation firm.  RM LAW, P.C. is devoted to protecting the interests of individual and institutional investors in shareholder actions in state and federal courts nationwide,” said part of a February 6, 2019 press release to the Daily Business News on MHProNews.

There is a growing number of such shareholders law firms circling Cavco Industries (NASDAQ:CVCO).

But does the risk to industry operations stop there?

To tee up this nuanced topic, let’s first note as a disclosure that we are not attorneys. The Daily Business News on MHProNews aren’t giving legal advice to current or potential members of the Manufactured Housing Institute (MHI).

But we do get input from attorneys and legal sources, before we tackle tricky topics, such as this one, that can spell perhaps unanticipated risk to Cavco Industries (CVCO) and others.

We editorially believe there is value to warning the industry’s professionals about possibly looming threats. It is worth noting that it’s connections to Arlington, VA based MHI that arguably spells the risk.  Why MHI?  That will become clear, below. So, with those disclaimers noted, let’s dive in.

Next, let’s look at what Angela Gonzales of the Phoenix Business Journal said in a recent report on legal fees and increasing insurance by Cavco to cover the growing risks of litigation.  Gonzales’ narrative are found between the —- lines below


SEC investigation spurs Phoenix homebuilder to pay $15.3M for directors, officers insurance

Ongoing investigation cost company more than $1M in legal expenses during recent quarter

·         Homebuilder experiences softening in home order rates beyond typical seasonal slowdown usually expected during winter months.


In the midst of a U.S. Securities and Exchange Commission investigation, Phoenix-based Cavco Industries Inc. has paid $15.3 million for extra directors and officers liability insurance coverage.

·         While company officials of the manufactured homes producer won’t say exactly how much that policy will cover, they did say the extra coverage will be needed in light of the ongoing independent investigation, which cost the company $1.3 million in legal and other expenses during the third fiscal quarter ended Dec. 29, 2018.

·         Since receiving an SEC subpoena in November, company officials said they have cooperated with the SEC’s investigation into the trading of stock of another public company. At the time, Joseph Stegmayer stepped down as chairman, president and CEO after an internal investigation found he violated company policy related to securities trading activity.

·         Daniel Urness, who served as Cavco’s executive vice president and chief financial officer since 2015, stepped up to serve as president and acting CEO.

·         In a Feb. 5 earnings call with analysts, Urness said the company received an additional document subpoena request from the SEC related to the original securities trading activities.

·         “We are fully cooperating with the SEC and work to resolve this matter,” Urness told analysts.

·         After reviewing directors and officers liability coverage, Urness said it was determined that additional coverage was prudent.

·         “We recognize it’s costly,” he told analysts. “Clearly, this is because it does cover certain risks associated with the SEC issue.”

·         For the three months ended Dec. 29, Cavco reported $13.4 million in net income on $233.7 million in net revenue, down from $21.4 million in net income on $$221.4 million in net revenue during the same period in 2017, according to filings with the SEC.

·         However, net income was up to $48.7 million on $721.6 million for the nine months ended Dec. 29, from $39.4 million on $628.7 million in net revenue during the first nine months of 2017.


Now, circle back to a prior report on Cavco, and see part of their latest public disclosure.  Here’s what the Motley Fool said was the official transcript from their most recent results call, starting with Cavco’s Mark Fusler’s comments.

“Mark Fusler — Director of Financial Reporting

Thank you. And before we begin, please be advised that comments made during this conference call by management will contain forward-looking statements under the provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations or assumptions about Cavco’s financial and operational performance, revenues, earnings per share, cash flow or use, cost savings and operational efficiencies. 

Some factors that may affect the company’s results include, but are not limited to the risk of litigation or regulatory action arising from the subpoenas we received from the SEC, the risk of potential litigation or regulatory action arising from the SEC related internal investigation and its findings, potential reputational damage that Cavco may suffer as a result of matters under investigation, adverse industry condition, our involvement in vertically integrated lines of business, including manufactured housing, consumer finance, commercial finance and insurance, market forces and housing demand fluctuations, our business and operations being concentrated in certain geographical region, the loss of any of our executive officers, federal government shutdown, and extensive regulation affecting manufactured housing…”

Those disclosures by Cavco are meant in part to comply with transparency requirements, but also to reduce their risk of potential litigation.


The Risk of Litigation, and MHI Member Companies

Facts are what they are.  It only requires some surfing of this site to recognize this next fact.

Well in advance of the numerous pending Cavco suits, MHProNews was alone among industry publishers signaling risks associated with MHI connected firms.

With Cavco’s aim of reducing the risk of litigation in mind, let’s go to some specific pull quotes from their statements, above. You’ll begin to see why the facts about MHVille that outsiders are routinely unaware of could spell even more risk for that Phoenix, AZ based firm or others, as we work through Cavco’s (CVCO) own list.

  • potential litigation or regulatory action arising from the SEC related internal investigation and its findings,” – a contact at the SEC would not continue or deny to MHProNews that they were researching possible market collusion or antitrust related issues with respect to Cavco and Stegmayer.
  • potential reputational damage that Cavco may suffer as a result of matters under investigation…” – Where is there a disclaimer about risks that may come as a result of association with the Manufactured Housing Institute (MHI)? Or that Joe Stegmayer is still the Chairman of MHI, and is reportedly saying things that would normally be the kind of statements made by a president, not the lesser role he is officially holding? More on that later purported risk is further below.
  • adverse industry condition,” – Given that Joe Stegmayer is MHI’s Chair, and MHI claims to ‘represent all segments of factory-built housing,’ how much risk is tied to those details? Is MHI truly doing their jobs well? If not, why not? There are legal sources that note that while not commonplace, perhaps, there is nevertheless examples of trade groups getting sucked into antitrust and other legal imbroglios.
  • our involvement in vertically integrated lines of business…” – if vertical integration is a risk, why isn’t it also risk to be working with potentially vulnerable independents? Which are more vulnerable, independents or vertically owned businesses units? Where is that disclaimer?
  • market forces and housing demand fluctuations…” – while technically accurate, this begs the question that the Urban Institute and others asked but arguably failed to properly answer. Why are so few manufactured homes being sold during an affordable housing crisis? Given that Cavco’s Stegmayer remains MHI’s Chairman, does that increase their exposure? How can he and his firm – or others in MHI – escape the notion that the industry is underperforming, and that they are in some measure to blame? See the comments from the MHI rival Manufactured Housing Association for Regulatory Reform (MHARR), linked further below.
  • the loss of any of our executive officers, federal government shutdown, and extensive regulation affecting manufactured housing…” – this last one is precisely an eyebrow raising case of chasing a gnat that had near zero risk in the first place, yet was inexplicably raised by MHI EVP Lesli Gooch. Why would Stegmayer presumably okay a statement by Gooch, that had been on no ones radar before, and with good reasons not to make something out of nothing? To better understand that, please see the linked report via the text/image box below.

Wall Street, Lesli Gooch – Manufactured Housing Institute EVP – Penetrating Scotsman Guide Interview Analysis

Could Other MHI Member Companies Could be Facing Risks?

Cavco, in a recently updated IR document, corrected an estimated figure that MHI has not yet corrected. Relevant data and facts are part of how investors make decisions. Perhaps sparked by periodic MHProNews reports on that topic of inaccuracies voiced by MHI, Cavco apparently reacted. If Cavco corrected an inaccurate data-point, why not MHI? When investors or prospective investors are told that the data comes from MHI – which is credibly accused of botching or misleading facts, figures, and more – does that create liabilities?

Absent sufficient disclosures, it might, say legal minds.

A Secret Society…?

MHI members who sit on a division board have voiced concerns with MHProNews that it is run like a “secret society,” with a select few ‘in the Know,’ and all others kept at arms length.

The pushback by Jeff Bezos vs. the National Enquirer opens a door that MHIndustry pros should ponder.  If Bezos says that their purported threat amounted to illegal extortion – how much more does that fear-based threat that stories like the one below inspires in MHVille?  These are wrinkles that industry outsiders are unlikely to grasp without sufficient research.

“Mobile Home Militia,” Retail/Production Sources, Sound Alarm Against Clayton Homes, CMH, New “Anti-Competitive Practices” Allegation

Note that these and other concerns are connected with MHI insiders.

Outsiders looking in may not fully grasp the bold and nuanced issues that impact the industry, and thus publicly traded firms too. Few if any MHI members are arguably giving the proper disclosures to their current or potential shareholders.

So, there are several reasons to be concerned that MHI staff – presumably under the board of directors tacit or active approval – has behaved in ways contrary to the interests of the majority of the industry.

If so, and member firms that are publicly traded aren’t disclosing those concerns, isn’t that far greater risk than running out of HUD labels caused by a partial federal shutdown that is now  nowhere on the horizon?

There is arguably no way that the shareholders plaintiffs attorneys circling Cavco could fully grasp the full story without expert insights. The fact that some of those lawfirms circling Cavco have been in touch with our publisher, and/or have signed up for our emailed news updates, reflects the growing reality that the truth about MHVille is coming out in stages. That’s both risk and opportunity in disguise, for those willing to connect the dots

MHProNews plans a related report and will monitor this developing case at the Akron Mobile Home Park in Akron, NY. While the Manufactured Housing Institute holds their winter fund-raiser -err, winter meeting – in Austin, TX, welcome to the ongoing drama that is buffeting MHVille in 2019. “We Provide, You Decide.” © ## (News, analysis, and commentary.)

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