Mega-carrier to pay $42 million, exec charged, for fraud

Federal investigators say that "executives hid losses in [their] aging trucking fleet and lied to auditors investigating allegations."

One of the nation’s largest trucking companies has agreed to a massive payout after more than a year-long federal investigation into the company’s accounting fraud.

Indianapolis, Indiana-based trucking company Celadon Group, Inc. has agreed to pay $42.2 million in restitution to shareholders for “filing materially false and misleading statements to investors and falsifying books, records and accounts,” according to an April 25 news release from the U.S. Attorney’s Office in the Southern District of Indiana.

Danny Williams, former President of Celadon subsidiary Quality Companies LLC — a company that leased trucks to owner-operators — has also been charged with one count of conspiracy to commit securities fraud, to make false statements to a public company’s accountants, and to falsify books, records and accounts of a public company in connection with the federal investigation against Celadon.

The plea deal comes after an investigation by the Securities and Exchange Commission (SEC) into allegations that Celadon mislead their investors by issuing false financial statements.

According to court documents, the fraud charges are related to Quality’s rapid inventory growth between 2013 and 2016, when they expanded from 750 tractors to more than 11,000 units.

By 2016, however, trucking took a downturn, and Quality found itself with $70 million worth of trucks that they could not lease.

“Quality’s financial performance began to struggle in 2016 due in part to a slowdown in the trucking market.  In addition, Quality owned a significant number of a truck models with mechanical issues, which many drivers did not want to lease.  By 2016, many of Quality’s trucks were idle, unleased and overvalued on Quality’s books.

Rather than admitting to their capacity struggles and financial issues, authorities say that Celadon helped Quality to hide their problems from investors.

“Instead of properly reporting Quality’s financial difficulties to investors, members of Celadon’s and Quality’s senior management team, all acting within the scope of their employment, participated in a scheme that resulted in Celadon falsely reporting inflated profits and inflated assets to the investing public through Celadon’s financial statements.

Between approximately June 2016 and October 2016, Quality engaged in a series of trades as a means to dispose of its aging and unused trucks.  In order to avoid disclosing the losses connected to these trucks, executives executed the trades using invoices purposely inflated well above market value.  Celadon ultimately used these invoices and inflated truck values to hide millions of dollars of losses from investors.”

Investigators say that after the company was accused of wrong doing, “management approved a memorandum that falsely stated the trucks involved in the above-described transactions were purchased and sold at fair market value, and were accounted for properly on Celadon’s books.”

“Celadon executives misled the investing public for a simple reason: profit,” said Assistant Attorney General Benczkowski.  “Securities fraud harms all investors — from the most sophisticated to those everyday Americans saving for retirement, and the Criminal Division remains committed to investigating and prosecuting these complex crimes.”

The investigation is ongoing, according to federal authorities.