The Department of Justice has charged two former executives of Roadrunner Transportation Systems, a publicly traded transportation and trucking company formerly headquartered in Cudahy, Wisconsin, in an indictment unsealed on June 15 for their alleged participation in a complex accounting and securities fraud scheme that resulted in a loss of more than $245 million in shareholder value.

Mark Wogsland and Bret Naggs were charged in an indictment filed in the Eastern District of Wisconsin 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; one count of conspiracy to commit securities fraud and wire fraud; three counts of securities fraud; and four counts of wire fraud. 

Naggs, the former controller for Roadrunner’s Truckload operating segment, and Wogsland, the former controller and director of accounting for Roadrunner’s Truckload operating segment, both worked out of Roadrunner’s corporate headquarters in Cudahy, Wisconsin. Roadrunner Transportation Systems is currently headquartered in Downers Grove, Illinois. 

“According to the allegations in the indictment, Mark Wogsland and Bret Naggs engaged in a massive securities and accounting fraud scheme that misled shareholders, regulators, and the investing public, and ultimately caused a loss of more than $245 million in shareholder value,” said Acting Assistant Attorney General John Cronan.

The indictment alleges that between 2014 and 2017, Naggs, Wogsland, and their co-conspirators carried out a complex scheme to mislead Roadrunner’s shareholders, independent auditors, regulators, and the investing public about Roadrunner’s true financial condition.

According to the indictment, beginning in 2014, Naggs, Wogsland, and their co-conspirators identified at least $7 million in overstated accounts on the balance sheet of one of Roadrunner’s largest operating companies, Roadrunner Intermodal Services (RRIS), which included old, uncollectable customer debts with static balances; understated and increasing liabilities for historic debt owed by terminated drivers; and overstated accounts for licenses and other “prepaid assets” that no longer had any actual value. Instead of addressing the misstated accounts by writing them off, the indictment alleges, Naggs, Wogsland and their co-conspirators purposefully left most of the misstated accounts on Roadrunner’s books to fraudulently boost Roadrunner’s financial performance and mislead Roadrunner’s shareholders, independent auditors, regulators, and the investing public about Roadrunner’s true financial condition.

According to the indictment, by late 2014, Naggs, Wogsland, and their co-conspirators developed a plan to write off a portion of the misstated accounts—but instead of immediately writing off the full amount, Naggs, Wogsland, and their co-conspirators directed RRIS finance employees to adjust the balance sheet by a small amount each month to conceal from Roadrunner’s shareholders, independent auditors, regulators, and the investing public the true nature and extent of the misstated accounts. 

After learning that Roadrunner’s performance at other operating companies had deteriorated, however, Naggs, Wogsland, and their co-conspirators abandoned the plan and, in some cases, reversed write-offs that had already been booked, the indictment alleges. The indictment further alleges that beginning in May 2015, Naggs and other Roadrunner employees received monthly financial reports from RRIS, which included profit and loss figures both with and without the planned monthly write-off.  

The indictment alleges that, due to the scheme, nearly all of the misstated accounts remained on RRIS’s balance sheet from 2014 until early 2017, when Roadrunner announced for the first time that it would be restating its previously reported financial results. Three trading days following the announcement, the price of Roadrunner’s shares dropped from $11.74 to $7.54 per share, causing a loss in shareholder value of more than $160 million. 

In early 2018, Roadrunner issued restated financial results for 2014 through the third quarter of 2016, acknowledging that it had identified material accounting errors resulting from material weaknesses and management override of internal controls. Three trading days after announcing the restated financial results, Roadrunner’s share price further dropped from $7.14 to $4.90, causing an additional loss in shareholder value of more than $85 million.

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