The Securities and Exchange Commission and the Department of Justice brought civil and criminal charges against three former executives of transportation company Roadrunner Transportation Systems for their alleged role in a complex securities and accounting fraud scheme that resulted in a loss of more than $245 million in shareholder value.
In charges brought April 3, the SEC alleges that Peter Armbruster, the former CFO of Roadrunner, hid incurred expenses by improperly deferring and spreading them across multiple quarters to minimize their impact on Roadrunner’s net earnings. Armbruster then allegedly manipulated certain reductions to liabilities, creating an income “cushion” that could be accessed in future quarters to offset expenses.
The SEC further alleges that Armbruster, as well as Bret Naggs and Mark Wogsland, former controllers of Roadrunner’s Truckload segment, identified and failed to write-off millions of dollars in overvalued assets and overstated receivables at one of Roadrunner’s operating companies. According to the SEC complaint, Armbruster, Naggs, and Wogsland also misled Roadrunner’s outside auditor about these misstated accounts, and as a result, Roadrunner materially misstated its operating income, net income, and earnings per share in its annual, quarterly, and current reports filed with the SEC.
The SEC’s complaint, filed in federal court in Milwaukee, Wis., alleges that Armbruster, Naggs, and Wogsland violated the anti-fraud and other accounting-related provisions of the federal securities laws. The complaint seeks permanent injunctions, penalties, and officer-and-director bars against all defendants; disgorgement, plus interest from Wogsland; as well as clawback bonuses and other incentive-related compensation paid to Armbruster while the alleged fraud was taking place.
Parallel criminal charges
In a parallel action, the Fraud Section of the U.S. Department of Justice has filed criminal charges against Armbruster, Naggs, and Wogsland. The superseding indictment was unsealed April 3.
All three defendants were charged with one count of conspiracy to make false statements to a public company’s accountants and to falsify a public company’s books, records, and accounts; two counts of false entries in a public company’s books, records, and accounts; one count of conspiracy to commit securities fraud and wire fraud; two counts of securities fraud; and two counts of wire fraud.
Armbruster and Wogsland were charged with one additional count of securities fraud. Armbruster is also charged with one count of bank fraud; two counts of false statements to a public company’s accountants; one count of false entries in a public company’s books, records, and accounts; and two counts of wire fraud.
Wogsland is also charged with two counts of false statements to a public company’s accountants and one count of insider trading. Naggs is also charged with one count of false entries in a public company’s books, records, and accounts.
“Rooting out individuals and companies involved in transportation-related corruption and corporate fraud schemes intent on providing false or misleading information to the federal government remains a high priority for the U.S. Department of Transportation Office of Inspector General,” said DOT-OIG Regional Special-Agent-in-Charge Andrea Kropf.
Armbruster made his initial appearance on April 3 before U.S. Magistrate Judge David Jones of the Eastern District of Wisconsin and was released on bond.