A federal indictment says fraudulent accounting practices between 2014 and 2017 resulted in a $245 million loss to shareholders.
The U.S. Justice Department said Peter R. Armbruster, former chief financial officer of Roadrunner Transportation Systems, has been charged for his alleged role in a securities and accounting fraud scheme that resulted in a loss of more than $245 million in shareholder value.
The indictment, which was unsealed Wednesday in a Wisconsin district court, also included additional charges against former Roadrunner executives Mark R. Wogsland and Bret S. Naggs. Both men initially were indicted in this case in June.
Wogsland and Naggs are both former controllers for Roadrunner’s truckload operating segment, and Wogsland also served as director of accounting for the business unit.
The charges against the three men include one count of conspiracy to make false statements to a public company’s accountant and falsify Roadrunner’s books, records and accounts, as well as two counts for false entries, two counts of securities fraud and two counts of wire fraud. Separate charges of fraud also were lodged against the former Roadrunner executives.
Armbruster (pictured above) made his initial appearance Wednesday afternoon before U.S. Magistrate Judge David E. Jones of the Eastern District of Wisconsin and was released on bond.
Starting 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, the Justice Department said.
Federal investigators found that the three men in 2015 planned to write off the illicit accounts but failed to do so for most of them. These misstated accounts remained on Roadrunner’s balance sheet until they resurfaced more than two years later after they had grown to between $25 million and $50 million, while Armbruster certified that Roadrunner’s financial statements were accurate.
In addition to concealing the misstated accounts, the Justice Department said the men used a practice known as “cushion” accounting, in which 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 latest indictment also alleges that, as part of the scheme, Armbruster, Wogsland and Naggs delayed recognizing expenses, including accruals for annual bonuses and expenses for bad debt, and misstated accounts to fraudulently inflate Roadrunner’s financial performance and further misled Roadrunner’s shareholders, independent auditors, lenders, regulators and the investing public about the company’s financial condition, the Justice Department said.
In January 2017, Roadrunner announced for the first time that it would restate 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.
Armbruster, who had joined the company in 2005, was fired in March 2017.
Roadrunner in early 2018 issued restated financial results for 2014 through the third quarter of 2016, acknowledging that it had identified accounting errors resulting from weaknesses and management override of internal controls. Three trading days after announcing the restated financial results, Roadrunner’s share price fell from $7.14 to $4.90, causing an additional loss in shareholder value of more than $85 million.