A Connecticut-based industrial holding company is investigating a subsidiary over “concerns” regarding its accounting practices.
Compass Diversified Holdings (CODI), which is headquartered at 301 Riverside Ave., in Westport, has disclosed the ongoing probe into Lugano Diamonds, a Newport Beach, California-based jewelry retailer with eight U.S. stores, including a shop at 240 Greenwich Ave., in Greenwich.
It also has an outlet in London, according to its website.
“The Audit Committee of CODI’s Board of Directors promptly launched an investigation after CODI’s senior leadership was made aware of concerns about how Lugano was potentially financing inventory,” Compass said. “The investigation, led by outside counsel and a forensic accounting firm, is ongoing but has preliminarily identified irregularities in Lugano’s non-CODI financing, accounting, and inventory practices.”
Compass said that it plans to delay filing its first-quarter results as it claims “non-reliance” on its financial statements for 2024 amid the probe into Lugano.
Compass declined to comment further on the matter.
Compass’ shares, which trade on the New York Stock Exchange as CODI, plummeted 61% from a pre-market high of $18.60 on Thursday to close the day at $7.28. It closed at $6.91 Friday and has risen to $7.03 as of Monday’s mid-morning trading.
“After discussing with senior leadership and investigators, the Audit Committee of CODI’s Board has concluded that the previously issued financial statements for 2024 require restatement and should no longer be relied upon,” the company said.
Compass said Moti Ferder, Lugano’s CEO and founder, resigned from all of his positions at Lugano last Wednesday and will not receive any severance compensation.
The accounting issues are limited to Lugano, of which Compass owns approximately 60%, the company said. The probe is not focused on Compass’ other subsidiaries, which include, among others, Sterno, Velocity Outdoor, Arnold Magnetic Technologies and The HoneyPot.
“The company’s Board of Directors continues to have confidence in CODI leadership and Compass Group Management, the company’s external manager,” said Larry Enterline, charmain of Compass’ board of directors. “The company’s manager and its employees reacted swiftly and decisively in response to a concern regarding Lugano, elevating it immediately to our Audit Committee.”
He said Compass has been “proactively engaged” with the Audit Committee and its investigators to speed up the probe and limit any long-term impact on Compass shareholders.
“What has been uncovered through the investigation thus far does not reflect who we are as a business and the values we uphold,” Compass CEO Elias Sabo said. “Our priority is to support the Audit Committee’s investigation and to fully understand what happened. CODI’s other eight subsidiary companies have strong balance sheets and cash flow, and we are, as always, fully focused on protecting our stakeholders and maximizing value.”
Josh Gaynor, who joined Lugano in 2024 as president, has been appointed interim CEO. He and Lugano CFO Christoph Pachler, who also joined Lugano in 2024, will step in to handle all of Ferder’s former responsibilities.
