Re/Max founder David Liniger violated ethics code with $2.38M loan to executive, company finds

A $2.38 million loan Re/Max founder and former CEO David Liniger provided to the company’s then-chief operating officer, Adam Contos, violated the company’s code of ethics because its board of directors was never told about it, the company said Thursday as it announced it had completed an internal investigation.

But the nondisclosure was unintentional, a special committee of the company’s independent directors found. The company gave no indication Liniger or Contos, promoted last week serve as Liniger’s replacement as CEO, will face any sanction for the breach of ethics. Still, the company announced changes to its bylaws that limit some powers of the CEO, while strengthening those of the board of directors.

Thursday’s announcement brings to a close a process announced in early November after Re/Max Holdings Inc., the Denver-based parent company of real estate brokerage franchising giant Re/Max, withheld its quarterly earnings report to look into the loan and other undisclosed conduct by Liniger. The issue drew a warning from the New York Stock Exchange that the publicly traded company could be delisted.

Re/Max released its delayed third quarter 2017 earnings, as well as its fourth quarter and full-year earnings, on Thursday. A conference call was scheduled for Friday morning.

The loan, used by Contos to purchase a residence at below-market rates, did not use any company money, Re/Max officials have said. Still, the independent directors who investigated it with the help of external counsel found the loan and other cash and noncash gifts Liniger and his wife provided to Contos violated company rules.

“The special committee concluded that these transactions created an actual or apparent conflict of interest. This, and the nondisclosure of these personal transactions to the company, violated company policies,” lead independent director Dick Covey said in the announcement. “The Board accepts that this nondisclosure was unintentional, and Adam has committed to repay the loan as promptly as possible.”

The investigation found Liniger also failed to comply with Re/Max workplace conduct policies, but the company did not elaborate on what that meant.

Contos was promoted to Liniger’s co-CEO in May. He was announced as sole CEO on Feb. 14. Liniger is staying on with the company as a nonexecutive chairman.

Re/Max, in a separate filing with the Securities and Exchange Commission on Thursday, provided an updated version of its bylaws, intended in part to “facilitate the transition of the management of the company from one led by its longtime founder, chair and chief executive officer to one led by a chief executive officer and a team of other executive officers.” The bylaw update includes a section giving the board of directors power to appoint and assign duties and powers to a lead independent director to be elected every 12 to 15 months.

Covey, the newly named lead independent director, is a former Air Force officer and astronaut and former president of the Boeing Service Co., according to Re/Max.

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 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.”

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