Ending an internal investigation first announced in November, a special committee has found that Re/Max founder Dave Liniger and executive Adam Contos broke the company’s code of ethics by failing to disclose to the Re/Max board of directors a $2.4 million loan given by Liniger to Contos for the purchase of a residence.

Ending an internal investigation first announced in November, a special committee has found that Re/Max founder Dave Liniger and CEO Adam Contos broke the company’s code of ethics by failing to disclose to the Re/Max board of directors a $2.4 million loan Liniger gave to Contos for the purchase of a residence. The committee appointed to look into the arrangement found no “credible” evidence to show that Liniger and Contos’ non-disclosure was intentional, however.

Adam Contos

Re/Max CEO Adam Contos. Credit: Re/Max

At the center of the investigation was the purchase of a $2.4 million residence by Contos, recently named the company’s sole CEO as Liniger moved into the role of non-executive chairman, “at a below-market interest rate,” and the exchange of both cash and non-cash gifts.

Re/Max executives are prohibited from receiving or arranging loans of any kind from inside the company, and employees found guilty of violating the provision can be subject to immediate termination, according to the Re/Max Code of Ethics and Business Conduct, posted online.

The special committee of independent directors also found “instances of non-compliance by Liniger with the code of ethics and other company policies related to workplace conduct,” according to an 8k form released by the company yesterday. Moreover, violations of the code of ethics and other company policies were not waived with the investigation’s conclusion, which opens the door to further scrutiny, said brokerage industry expert Russ Cofano.

“The fact that the board has not waived the violations only means that there could be future disciplinary action. Based on recent position changes involving Liniger and Contos, it would seem unlikely that the board will do anything further based on these events,” Cofano told Inman.

In a release announcing the investigation’s conclusion, the company noted that it would be broadening the scope of responsibilities for Dick Covey, the company’s lead independent director.

Dave Liniger. Credit: Re/Max

“Although the loan, gifts, and other transactions between the Linigers and Adam Contos did not involve use of any corporate funds, the Special Committee concluded that these transactions created an actual or apparent conflict of interest,” Covey said in a statement. “This, and the non-disclosure of these personal transactions to the Company, violated Company policies.  The Board accepts that this nondisclosure was unintentional, and Adam has committed to repay the loan as promptly as possible.”

In an interview with Denver Post, Sanjai Bhagat, provost professor of finance at the University of Colorado, was skeptical about what Thursday’s announcement means for shareholders.

“It doesn’t pass the smell test,” Bhagat said of the findings, noting to the Post that a top executive issuing a large loan to one of his subordinates raises red flags. “When you have things like that happening, I think maybe the outside independent directors should have been a lot more assertive here and maybe enacted a change in leadership.”

It is most likely that Liniger and Contos did not know about the code’s application to their dealings or did not think the code applied, said Cofano.

The conclusion of the investigation comes as the company announced its preliminary third-quarter, fourth-quarter and full-year earnings results today. It was an embarrassing episode that led to a notice being sent to Re/Max by the New York Stock Exchange in November that the company was not in compliance with the stock exchange’s timely filing criteria for the third quarter ending September 30. It was back to a normal filing schedule now, said a Re/Max spokeswoman today.

While the investigation was still ongoing, Re/Max also announced the retirement of president of Geoff Lewis, the official retirement of Liniger and the appointment of Contos as sole CEO.

As a result of the investigation, the board and senior leadership will take a number of steps to include “enhanced corporate policies and practices” related to gifts, loans, conflicts of interest and workplace conduct, and the reporting of such matters. There will also be more training on the responsibilities of officers and leaders related to these issues.  

“The Board looks forward to working with Adam and his senior leadership team to continue to build on Re/Max’s strong foundation and lead Re/Max into its next chapter,” said Covey in a statement.

Email Gill South.

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