Item 1. Legal Proceedings
Item 1. Legal Proceedings
Information regarding reportable legal proceedings is contained in Part I, Item 3, Legal Proceedings , in the Form 10-K. The following describes legal proceedings, if any, that became reportable during the period ended September 26, 2020, and, if applicable, amends and restates descriptions of previously reported legal proceedings in which th ere have been material developments during such quarter.
Since 2018, the Company has been cooperating with an investigation by the enforcement staff of the SEC's Los Angeles Regional Offices regarding securities trading in personal and Company accounts directed by the Company's former CEO, Joseph Stegmayer. The Audit Committee of the Board of Directors conducted an internal investigation led by independent legal counsel and other advisers and, following the completion of its work in early 2019, the Audit Committee shared the results of its work with the Company's auditors, listing exchange and with the SEC staff. The Company has also made documents and personnel available to the SEC staff and intends to continue cooperating with its investigation. The Company has been exploring the possibility of a settlement with the SEC staff in connection with the matter , but at this time, the Company is unable to estimate the amount of a potential loss, if any . The Company is hopeful that an amicable resolution can be reached in the coming months. As noted in the Company’s September 24, 2020 Form 8-K filing, the SEC staff that week issued a Wells Notice to Dan Urness, the Company's Chief Financial Officer and prior Principal Financial Officer and Principal Accounting Officer, in connection with its investigation, noting that it intends to recommend an enforcement action against him. Rather than have this be a distraction to the Company, Mr. Urness has gone on leave to focus on his response to the Wells Notice. Paul Bigbee, the Company’s Chief Accounting Officer since June 2020, is now serving as its Principal Financial Officer and Principal Accounting Officer.
As a result of the ongoing SEC investigation, the Company incurred $1.1 million in expenses and also received a $1.3 million insurance reimbursement of prior expenses, resulting in a net benefit of $0.2 million for the six months ended September 26, 2020 compared to $1.6 million in e xpenses during the six months ended September 28, 2019. The Company expects to continue to incur costs relating to this matter. During the third quarter of fiscal year 2019, the Company also reviewed the sufficiency of its insurance coverage and, based on that work, Cavco's Board of Directors made a decision to purchase additional director and officer ("D&O") liability insurance coverage with 22-month terms for a total premium of $15.3 million (which cost was evenly amortized over the terms of the policies). As a result, the Company recorded $4.2 million of additional D&O policy premium expense during each of the six months ended September 26, 2020 and September 28, 2019. With the conclusion of the amortization through the second quarter of fiscal year 2021, the additional D&O liability insurance premiums have now been fully amortized. D&O renewal premiums are now in the ordinary course of business.
Joseph D. Robles v. Cavco Industries, Inc., was filed in the Superior Court for the State of California, Riverside on June 25, 2019 and Malik Griffin v. Fleetwood Homes, Inc ., was filed in the Superior Court for the State of California, San Bernardino on September 19, 2019, seeking recovery on behalf of a putative class of current and former hourly employees for certain alleged wage-and-hour violations, including, among other things: (i) alleged failure to comply with certain wage statement formatting requirements; (ii) alleged failure to compensate employees for straight-time and overtime hours worked; and (iii) alleged failure to provide employees with all requisite work breaks. All parties have agreed to jointly mediate both cases. The mediation is currently scheduled for January 27, 2021.
The Company is party to certain other lawsuits in the ordinary course of business. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations after taking into account any existing reserves included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. However, future events or circumstances that may currently be unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on the Company's consolidated financial position, liquidity or results of operations in any future reporting periods.
33
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.