A systematic look at each of the headline topics will frame the good, bad, and possibly ugly that merits a nuanced and information-packed investor, professional, and public official alert about Cavco Industries in general, and specific communications regarding the issues that follow with Cavco’s Mark Fusler. What follows logically has broader implication beyond Cavco (NASDAQ:CVCO), to other publicly traded firms that routinely happen to have ties with the Arlington, VA based Manufactured Housing Institute (MHI).
To set the stage, “Mark Fusler is Dir: Financial Reporting & IR at Cavco Industries Inc.,” says Bloomberg.
Cavco’s corporate website shows Fusler as their “Primary IR [Investor Relations] contact” on their IR page, which for balance against the concerns that will be raised, includes the following self-promotional details.
“As a corporation publicly traded on the NASDAQ Global Select Market (symbol CVCO), we have a commitment to our stockholders, our people, and our homebuyers to provide quality housing and exceptional service. In recognition of its innovation, customer service, and long term stability, Cavco Industries has been awarded the following accolades:
- MHI Manufacturer of the Year, for seven consecutive years
- Forbes Magazine 100 Best Managed Companies in the U.S.
- Forbes Magazine America’s 100 Best Small Companies
- 20% Women Directors- 2020 Women on Boards”
The MHI “Manufacturer of the Year” and the fact that former Cavco Chairman, President, and CEO Joseph “Joe” Stegmayer served as the Manufactured Housing Institute (MHI) Chairman of the Board may be particularly relevant to what follows. Because Cavco has clearly been
- well positioned to know facts about the industry,
- and Cavco has been and continues to be able to influence issues at MHI.
Double-checking on this date the MHI website, the board members remain as follows.
So, Cavco has for years held a position of influence and prestige on MHI’s board. Yet, Cavco since the November 2018 revelations of an SEC subpoena over trading issues has reportedly spent millions of dollars in positioning the firm against a defense against plaintiffs’ attorneys for shareholders and federal investigations alike.
For additional context to what follows in the communications with Cavco’s Fusler are these points about reporting to investors.
In a Harvard Law Forum on Corporate Governance, says in part that “Rule 10b-5 applies to statements made in the context of securities offerings as well as in periodic reports and day-to-day communications with analysts and investors. Because of the potential for liability, it is prudent for those giving guidance to speak carefully, completely and deliberately.”
With regard to Safe Harbor provisions in communications, the same source explained noted that the Private Securities Litigation Reform Act of 1995 (PSLRA) set forth certain “safe harbor” communications provisions. Harvard’s site then said “These safe harbors also provide protection where a plaintiff fails to prove that a statement was made with actual knowledge that the statement was false or misleading if made by a natural person, or was made by or with the approval of an executive officer if made by a company.”
Under “Whether to Update” communications, Harvard Law said that “Although the PSLRA explicitly states that it does not “impose upon any person a duty to update a forward-looking statement,” some courts have suggested that a duty to update may apply if events transpire that cause a company’s prior disclosure to become materially inaccurate,” underscoring added for emphasis “even though that prior disclosure was accurate when made. There is no requirement that a public company immediately make public all material facts that come into its possession on a real-time basis, but where a public company’s affirmative and definitive prior statement becomes clearly and materially false, it should consider issuing a clarifying, correcting or updating statement.”
A common-sense reading of the last part of that sentence may apply to what follows with respect to what are arguably inaccurate and misleading statements by Cavco Industries. Once more for clarity, “…but where a public company’s affirmative and definitive prior statement becomes clearly and materially false, it should consider issuing a clarifying, correcting or updating statement.”
>>> Put bluntly, when an error is found, experts have said that a good legal practice is to promptly correct and clarify false and misleading statements. Note that the typos from the sources cited above and what follows are in the original.
MHProNews contacted Cavco’s Mark Fusler, as well as their outside media ‘crisis issues’ contact, with the following apparent errors and arguably misleading, inaccurate, or false statements. Meaning, these are the types of issues that good corporate governance, based upon sources like those noted, suggest should be promptly dealt with.
While what follows may not seem to be a big a deal – if a company has had no serious history of potential SEC violations – Cavco’s history is clearly distinctive. Given over two years of subpoenas, Wells Notices, and other legal drama surrounding Cavco, this is arguably more serious.
The confirmed e-letter to Fusler from MHProNews, asking the firm to address certain issues in reporting, was sent on the date and time that follows. That will be followed by additional information, MHProNews Analysis and Commentary.
Thu, Dec 10, 12:59 PM
Mark Fusler @Cavco IR – Media requests for response and/or corrections in your IR reporting
As you may know, MHProNews and our sister site are the largest and most-read trade media serving the manufactured home industry. Unlike some of the others who blog or publish, my personal experience in the industry goes well beyond publishing to granular, management level insights having worked in several aspects of manufactured housing starting in the early 1980s. See links here and here.
That is relevant to the request that follows.
MHProNews has specific concerns about statements made – as if factually accurate – that are in your new Cavco Industries (CVCO) Investor Relations PowerPoint pitch deck. Before diving further into this request for timely corrections, let me share a relevant example of what we expect as a proper and timely follow up.
In 2018, when this writer, on behalf of MHProNews, contacted Scholastica “Gay” Cororaton, CBE at the National Association of Realtors (NAR) to ask for corrections in her research on manufactured housing. Gay double checked and confirmed that the concerns I raised were all accurate. Gay then had all of the changes made, and then the Journal of Real Estate studies republished the entire issue. Gay then added my name to the credits in her research’s first footnote. See page 48, linked here. That all occurred in short order because it was all digital. We have both the original and the republished versions of her seminal report. With the corrections made, the case can be made that Gay’s research is some of the best about manufactured housing from a true third-party source in years. She was not offended that I asked her for corrections. Instead, Gay was thankful and professional.
That said, here below are some of the issues on four (4) of your slides that IMHO need to be corrected in your November 2020 Cavco Investor Relations PowerPoint slide deck.
There are more, but once you acknowledge that you intend to promptly address these issues, we will then be willing to provide you with other items that merit scrutiny and /or correction.
In fairness, you should know that we are BCC copying some industry attorneys, peers, and public officials to document this request that you and your firm make the necessary corrections. It seems only fair to your investors and potential investors, don’t you agree?
Also in fairness, there are other manufactured housing publicly traded firms that need to make similar changes. You are welcome to share this with others, as needed or desired.
BTW, you are welcome to provide feedback on any of our reports, recent or previous in 2020, on Cavco. That includes the latest emailed headlines below, which include Cavco.
Based on our knowledge of the manufactured home industry, this request could be done in a few hours, or perhaps one business day (+/-), including time needed to confirm the information. Even allowing for ‘meetings,’ it should not take long to accomplish this.
Either way, MHProNews and/or MHLivingNews plans to report. Your timely response is requested.
L. A. “Tony” Kovach
LifeStyle Factory Homes, LLC
—- end of the body of MHProNews inquiry to Mark Fusler, Cavco IR —-
Additional Information, MHProNews Analysis, and Commentary
A check at 8:37 AM on 12.13.2020 of the latest Cavco Investor relations presentation slide-deck is linked here. There are no apparent changes, regarding the information requested. Reliable MHProNews sources have confirmed that Cavco has this information, and has been following recent reporting on their firm and other MHI related issues. No formal reply has come from Fusler, or others at Cavco. No apparent change to the investor relations document has been made from their IR page.
The latest 8K filing from Cavco is dated 11.24.2020. It gave the following event updates.
“Item 8.01 Other Events.
SEC Investigation Update Cavco Industries, Inc. (Cavco, or the Company) is providing an update on its involvement in the ongoing Securities and Exchange Commission (SEC) investigation being conducted by the staff of the SEC’s Los Angeles Regional Office involving trading in the securities of other public companies directed by the Company’s former Chief Executive Officer, Joseph Stegmayer, which the Company first disclosed in November 2018. Since that time, the Company has disclosed, among other things, its ongoing cooperation with the SEC staff, the departure of Mr. Stegmayer and the completion of an independent investigation of the Audit Committee of the Company’s Board of Directors, whose results were shared in early 2019 with the SEC staff, the Company’s listing exchange and its auditors. On September 25, 2020, the Company also disclosed that it had begun settlement negotiations with the SEC staff in connection with this matter, though not pursuant to any formal recommendation.
On November 20, 2020, the SEC staff issued a Wells Notice to the Company in connection with its investigation, noting its preliminary intent to recommend a related enforcement action against the Company. A Wells Notice is not a formal complaint or adjudication, or a finding by the SEC of any wrongdoing by the Company. The Company’s discussions with the SEC staff on a possible settlement are ongoing, and it remains hopeful that an agreeable resolution can be reached in the coming months.”
Per Cavco, the SEC has provided them with a Wells Notice, “in connection with its investigation,” which they defined as “its [i.e. the SEC’s] preliminary intent to recommend a related enforcement action against the Company.
The argument can be made, based on the issues raised in reports by MHProNews, the Manufactured Housing Association for Regulatory Reform (MHARR), and others, that Cavco is not the only firm that is an MHI member that merits a federal and/or state probe.
Indeed, there are per reports, a number of state and federal probes involving Berkshire Hathaway owned Clayton Homes, as well as several other MHI member companies.
What is not precisely clear at this time is if MHI itself is being probed? There are reasons to think that MHI and its key people should be the subject of legal inquiries, if it isn’t already under investigation.
The issues that MHProNews, MHLivingNews has raised in recent years– often based on insights from consumer groups, MHI insiders, MHEC members, MHARR, and other sources – point to what could be dubbed a ‘rigged system’ in manufactured housing. While MHI is not the only place where that ‘rigging’ has arguably occurred, it is certainly an important point worthy of investigating.
When publicly traded firms are telling their current and potential investors information based on MHI ‘research’ or ‘information’ that proves to be false, that is a matter of concern. It is especially so when those same public firms clearly wield some level of influence and input on MHI, as their dues structures and positions on various MHI boards reflects.
Additionally, as Danny Ghorbani, a former MHI executive has said, some of those same firms often wield strong influence over state associations too.
To sum up just some of the key concerns purportedly include, but are not limited to, the following:
- Federal laws exist that were specifically designed to benefit manufactured home owners and affordable housing seekers are arguably being thwarted or ignored by key MHI staff and member firms. Two name two examples, the Manufactured Housing Improvement Act of 2000 (MHIA or 2000 Reform law) and the Duty to Serve Manufactured Housing which was part of the Housing and Economic Recovery Act of 2008 (HERA). How can public firms – and MHI, which the large firms dominate – justify the misuse, marginalizing or ignoring of these laws?
- Independent producers, retailers, community operators, lenders, vendors, and suppliers are among those impacted by this pattern.
- But so too are investors.
- Additionally, these laws were enacted to provide a path for more affordable home ownership. Given that would routinely benefit minorities and other lower to modest income groups, on a social justice level, how can these firms and MHI claim to be advancing the public interest?
- Affordable homeownership is a stated goal of public policy. Issues ranging from misinformation to failing to effectively use or promote useful laws as it relates to manufactured housing can not easily be excused.
- For those who have concerns that more manufactured housing somehow harms the interests of other single-family residential housing, an Obama-Biden administration era research study commissioned by HUD proves otherwise. Since then, other research by the FHFA, Urban Institute, the National Association of Realtors and others have underscored those points.
- That logically means that MHI and their larger dominating firms are failing to do what MHI’s stated mission claims.
- Much of this could be summed up as a sophisticated, if at times subtle, effort to undermine independent firms.
- At the same time, that points to ways that local, state, and federal governments are paying more for subsidized housing programs than is necessary if these good laws were being fully and properly implemented.
- As manufactured home advocate and retired businessman the Reverend Donald Tye Jr. has said, more home ownership has ancillary benefits for increasing the tax base.
- As the Trump Administration HUD Secretary Ben Carson has said, wealth inequality could be addressed if there were more affordable home ownership.
Rephrased, there are an array of consequences to taxpayers, public coffers, millions of Americans, as well as investors when the issues raised herein are not properly addressed.
An outgoing MHI president and CEO said that the entire industry should be focused on increasing the value proposition for current manufactured homeowners. That would logically include the issues raised herein.
It is perhaps no surprise that Fusler and Cavco were mute. From their corporate perspective, it may be a bit of a problem for Cavco to make the changes requested, because they arguably knew about them long before the formal request from MHProNews to them as expressed in the email shown above.
Claims of corruption in manufactured housing have been ongoing for years. It took an SEC subpoena on a specific concern to bring it into focus for investors. But that, arguably, is just the tip of the iceberg.
Whichever party ends up occupying the White House after Inauguration Day 2021, there are issues that merit serious investigation. MHProNews will continue to monitor and report on such issues, bring them attention to the industry and other interested parties.
That’s a wrap on this installment of manufactured housing “Industry News, Tips, and Views Pros Can Use” © 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.
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