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Daily Court Reporter - News Former CFO at publicly traded transportation company charged with $245 million securities and accounting fraud scheme

 

Former CFO at publicly traded transportation company charged with $245 million securities and accounting fraud scheme

Former CFO at publicly traded transportation company charged with $245 million securities and accounting fraud scheme

Two other defendants previously indicted charged with additional offenses

The former chief financial officer (CFO) of Roadrunner Transportation Systems Inc. (Roadrunner), a publicly traded transportation and trucking company formerly headquartered in Cudahy, Wisconsin, was charged in a superseding indictment unsealed recently for his alleged role in a complex securities and accounting fraud scheme that resulted in a loss of more than $245 million in shareholder value. The superseding indictment also includes additional charges against two former Roadrunner finance executives for their roles in the scheme.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Matthew D. Krueger of the Eastern District of Wisconsin, Regional Special Agent in Charge Andrea Kropf of the U.S. Department of Transportation Office of Inspector General (DOT-OIG) and Acting Special Agent in Charge Michelle Sutphin of the FBI’s Milwaukee Field Office made the announcement.

Peter R. Armbruster, 60, of Milwaukee, Wisconsin, was charged in a superseding indictment filed in the Eastern District of Wisconsin with various offenses. Mark R. Wogsland, 53, and Bret S. Naggs, 52, both of Cedarburg, Wisconsin, and both of whom were charged in the initial indictment in this case filed in June 2018, were also charged in the superseding indictment with various offenses. 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.

Armbruster made his initial appearance this afternoon before U.S. Magistrate Judge David E. Jones of the Eastern District of Wisconsin and was released on bond.

“According to the charges, former CFO Peter Armbruster, and former executives Mark Wogsland and Bret Naggs, used sham accounting entries, misstated accounts, and other means to conceal millions of dollars of bad debts and other financial problems from Roadrunner’s shareholders, regulators, lenders, and the investing public,” said Assistant Attorney General Benczkowski. “This pattern of deception allegedly caused investors to lose hundreds of millions of dollars. The Department of Justice and our law enforcement partners are committed to protecting investors and safeguarding the integrity of our markets by holding culpable executives to account for securities and accounting fraud.”

“Our economic vitality depends upon shareholders having accurate information about publicly traded companies,” said U.S. Attorney Krueger. “This case demonstrates the Department of Justice’s commitment to protecting the integrity of securities markets.”

“Securities fraud is not a victimless crime. In this case, shareholders lost over $240 million,” said FBI Acting Special Agent in Charge Sutphin. “These types of crimes remain a high priority for the FBI. Perpetrators who mislead investors by manipulating financial data to falsely inflate business performance will be held accountable and face justice for their crimes.”

“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 Kropf. “Today’s superseding indictment reinforces that, working with our law enforcement and prosecutorial partners, these blatant acts of fraud and deception will not go unnoticed or be tolerated.”

Armbruster was Roadrunner’s CFO. Wogsland and Naggs are both former controllers for Roadrunner’s Truckload operating segment, and Wogsland also served as director of accounting for Roadrunner’s Truckload operating segment. The superseding indictment alleges that between 2013 and 2017, Armbruster, Wogsland, Naggs and their co-conspirators carried out a complex scheme to mislead Roadrunner’s shareholders, independent auditors, lenders, regulators and the investing public about Roadrunner’s financial condition. Beginning as early as 2014, Armbruster, Wogsland, Naggs and their co-conspirators allegedly concealed millions of dollars in misstated accounts, including uncollectible debts and receivables and assets with little to no value. As alleged in the superseding indictment, Armbruster, Wogsland, Naggs and their co-conspirators determined that most, if not all, of these accounts needed to be written off and even developed a plan to write off or “clean up” some of these misstated accounts in 2015, but did not write off the vast majority of the accounts. According to the allegations, these misstated accounts remained on Roadrunner’s balance sheet until they resurfaced more than two years later after they had grown to between $25 and $50 million, but Armbruster nevertheless again certified that Roadrunner’s financial statements were accurate.

The superseding indictment alleges that, in addition to concealing misstated accounts, Armbruster and his co-conspirators engaged in so-called “cushion” accounting whereby they selectively reduced liability accounts in order to create a “cushion” of funds that the conspirators used to fraudulently inflate Roadrunner’s financial performance in later quarters. The superseding indictment also alleges that, as part of the scheme, Armbruster and his co-conspirators delayed recognizing expenses, including accruals for annual bonuses and expenses for bad debt, and otherwise misstated accounts, in order to fraudulently inflate Roadrunner’s financial performance. The superseding indictment further alleges that Armbruster, Wogsland, Naggs and their co-conspirators concealed their scheme and misled Roadrunner’s shareholders, independent auditors, lenders, regulators and the investing public about Roadrunner’s financial condition.

According to the superseding indictment, in January 2017, 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.

An indictment is merely an allegation and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The DOT OIG’s Chicago Office and the FBI’s Milwaukee and Atlanta Field Offices are investigating the case. Securities and Financial Fraud Unit Principal Deputy Chief Henry Van Dyck and Trial Attorneys Caitlin Cottingham and David Stier of the Criminal Division’s Fraud Section are prosecuting the case, with assistance from the U.S Attorney’s Office for the Eastern District of Wisconsin. The Securities and Exchange Commission also provided assistance in this matter.

About the United States Department of Justice

The Office of the Attorney General was created by the Judiciary Act of 1789 (ch. 20, sec. 35, 1 Stat. 73, 92-93), as a one-person part-time position. The Act specified that the Attorney General was to be "learned in the law," with the duty "to prosecute and conduct all suits in the Supreme Court in which the United States shall be concerned, and to give his advice and opinion upon questions of law when required by the President of the United States, or when requested by the heads of any of the departments, touching any matters that may concern their departments."

However, the workload quickly became too much for one person, necessitating the hiring of several assistants for the Attorney General. As the work steadily increased along with the size of the new nation, private attorneys were retained to work on cases.

By 1870, after the end of the Civil War, the increase in the amount of litigation involving the United States had required the very expensive retention of a large number of private attorneys to handle the workload. A concerned Congress passed the Act to Establish the Department of Justice (ch. 150, 16 Stat. 162), creating "an executive department of the government of the United States" with the Attorney General as its head.

Officially coming into existence on July 1, 1870, the Department of Justice was empowered to handle all criminal prosecutions and civil suits in which the United States had an interest. To assist the Attorney General, the 1870 Act also created the Office of the Solicitor General, who represents the interests of the United States before the U.S. Supreme Court.

The 1870 Act remains the foundation for the Department’s authority, but the structure of the Department of Justice has changed over the years, with the addition of the offices of Deputy Attorney General, Associate Attorney General, and the formation of various components, offices, boards and divisions. From its beginning as a one-man, part-time position, the Department of Justice has evolved into the world's largest law office and the chief enforcer of federal laws.

Thomas Jefferson wrote, “The most sacred of the duties of government [is] to do equal and impartial justice to all its citizens.” This sacred duty remains the guiding principle for the women and men of the U.S. Department of Justice.

Date Published: April 18, 2019

 

US Department of Justice

 

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