Compass Diversified (CODI), the parent of 5.11 Tactical, Boa and Primaloft, provided an update on Wednesday, May 28, on the steps it is taking to enhance liquidity and reduce costs in the wake of its earlier announcement that it is investigating, and has preliminarily identified irregularities in, the financing, accounting, and inventory practices at its subsidiary, Lugano Holding, Inc.

CODI reported it had taken the following actions:

  • Entered into a forbearance agreement with its lender group to preserve sufficient liquidity to maintain normal operations.
  • Significantly reduced management fees paid by CODI.
  • Restricted investment in Lugano, focusing resources on CODI’s eight other market-leading subsidiaries.
  • Suspended the quarterly cash distribution historically paid to common shareholders to preserve cash and protect long-term value.

“We are taking decisive action to enhance liquidity, reduce costs and preserve value for all stakeholders,” said Elias Sabo, chief executive at Compass Diversified. “We are encouraged by the support of our lenders as we take the necessary steps to reduce leverage and restore compliance with our debt covenants.”

Sabo continued, “Our structure and diversified business model give us the flexibility to help isolate and ring-fence the challenges at Lugano while continuing to support the growth and execution of our healthy businesses. CODI’s other eight subsidiaries continue to execute, and we believe they are well-positioned to grow in their respective markets. As our subsidiaries generate cash, we are focused on quickly deleveraging and ultimately maximizing value for all shareholders.”

NYSE Action
On a separate note, CODI received notice from the New York Stock Exchange (NYSE) on May 20, 2025, stating that the company is not in compliance with Section 802.01E of the NYSE Listed Company Manual as a result of its failure to timely file the Form 10-Q before May 19, 2025, the end of the extension period provided by Rule 12b-25 under the Securities Exchange Act of 1934, as amended.

This notice is reported without immediate effect on CODI’s listing status.

The notice informed CODI that, under NYSE rules, CODI has six months from May 19, 2025, to regain compliance with the NYSE listing standards by filing Form 10-Q with the Securities and Exchange Commission (SEC). If CODI fails to file Form 10-Q within the six-month period, the NYSE, in its sole discretion, may grant an extension of up to six additional months for CODI to regain compliance, depending on the specific circumstances. The notice also noted that the NYSE may, nevertheless, at its discretion, commence delisting proceedings at any time during such period.

As previously disclosed in CODI’s Notification of Late Filing on Form 12b-25, filed on May 13, 2025, with the SEC, CODI was unable to file Form 10-Q on a timely basis due to the ongoing internal investigation of Lugano.

CODI cannot make any assurances regarding the timing of the Form 10-Q or the restated financial information for the fiscal year ended December 31, 2024 (or the potential need to restate additional periods). However, CODI is continuing to work diligently to file the Form 10-Q as soon as reasonably practicable.

Class Action Lawsuits Looming
As one would expect, the vultures are circling the CODI mess, with multiple firms filing or planning to file class action lawsuits against the company and advertising to CODI shareholders in hopes of getting them to join their respective class actions.

One large firm stated that its complaint alleges Compass made false and misleading statements and failed to disclose critical information regarding Lugano, which operates in the branded consumer goods sector, which also includes 5.11, BOA, and Primaloft. Specifically, the firm stated that its lawsuit claims Lugano maintained undisclosed financing arrangements and exhibited irregularities in its sales, cost of sales, inventory, and accounts receivable.

According to the complaint, these alleged irregularities rendered Compass Diversified’s 2024 financial statements unreliable, necessitating a restatement. Furthermore, the suit alleges that Compass’s internal controls over financial reporting were inadequate, contrary to previous representations.

The truth, the lawsuit claims, came to light on May 7, 2025, after the close of trading on that day. Compass issued a regulatory filing (Form 8-K) accompanied by a press release titled “Compass Diversified Discloses Non-Reliance on Financial Statements for Fiscal 2024 Amid an Ongoing Internal Investigation into its Subsidiary, Lugano Holding, Inc.”

In this release, Compass disclosed that it had “preliminarily identified irregularities in Lugano’s non-CODI financing, accounting, and inventory practices.”

The company further stated that its audit committee had concluded that the previously issued 2024 financial statements required restatement and should no longer be relied upon.

Compass also announced its intention to delay the filing of its first-quarter 2025 Form 10-Q.

Following this disclosure, Compass’s stock price reportedly fell 60 percent in a single trading day. As of the market close on May 27, 2025, CODI shares were down more than 67 percent year-to-date and set to fall in double digits at the open on May 28, based on pre-market trading.

Image courtesy Lugano Diamonds/Compass Diversified