Two former Roadrunner Transportation Systems executives were charged with multiple crimes related to accounting and securities fraud in a federal indictment unsealed Friday.
Mark Wogsland, 53, and Bret Naggs, 52, were each 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; one count of conspiracy to commit securities fraud and wire fraud; three counts of securities fraud; and four counts of wire fraud.
Roadrunner recently moved its corporate headquarters to Illinois, but both Wogsland and Naggs worked in the company’s Cudahy, Wisconsin headquarters prior to the relocation. The indictment was filed in the Eastern District of Wisconsin.
An indictment is a formal accusation. It does not determine guilt, and defendants are presumed innocent until proven guilty in a court of law.
The alleged scheme
The indictment alleges Wogsland, Naggs and their “co-conspirators” participated in a scheme to manipulate Roadrunner’s publicly reported earnings and defraud shareholders and the investing public from sometime in 2014 to approximately January 2017.
“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,” Acting Assistant Attorney General John Cronan said. “The Criminal Division is committed to protecting investors and the integrity of U.S. securities exchanges, and we will vigorously pursue corporate executives who engage in deceptive and fraudulent accounting practices.”
The indictment alleges that Wogsland and Naggs calculated over $7.5 million in misstated accounts on the company’s balance sheets, including customer receivables, overstated accounts for prepaid taxes and licenses and lease purchase receivables.
This discovery was made in 2014, but the majority of the misstated accounts were left on the books until early 2017 in an attempt to improve the company’s financial image, 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 as uncollectible,” the indictment reads. “However, instead of immediately writing off the full amount Naggs and others directed finance employees to adjust the balance sheet by a small amount each month, in order to conceal from Roadrunner’s shareholders, independent auditors, regulators and the investing public the true nature and extent of the misstated accounts.”
The indictment goes on the allege that Wogsland and Naggs abandoned the write off plan in 2015, after which point none of the misstated accounts were written off or materially adjusted until Roadrunner announced it would issue restated earnings in 2017.
Roadrunner moving forward
Roadrunner released restated financial reports for 2014 through 2016 in 2017 and 2018, including both annual and quarterly reports. This resulted in a drop in share price, amounting to a $245 million loss in shareholder value.
The company cited “accounting errors” as the reason for the restatements.
Roadrunner CEO Curtis Stoelting said his team has shifted their focus to customer service and growth.
“Since announcing the restatement in January 2017, we have implemented corrective actions to strengthen the company’s internal compliance processes and controls, including replacing the former management team with a new experienced executive leadership team, appointing a new independent chairman of the board, hiring new financial leaders and investing in other operational improvements,” Stoelting said in a prepared statement. “The restatement of the company’s previously reported financial results was completed and filed with the SEC in January 2018. Our teams are now focused on continuing to serve our customers, further improving operations and achieving sustainable long-term growth.”
Roadrunner’s new management team made its first serious presentation to investors in April.
At the time, FreightWaves reported that the call coincided with the company’s release of its earnings statement for the first three quarters of 2017, which had been delayed as the company attempted to clean up the extensive problems in its accounting.
Roadrunner has not yet released its fourth quarter 2017 earnings or its 10-K. The company received a notice from the New York Stock Exchange in April. The notice let the company know it was not in compliance with the exchange’s continued listing requirements and issued an Oct. 3 filing deadline.
In an April press release, the company said it expects to file its 10-K during the second quarter of 2018.
Even though the individuals named in the indictment are no longer employed at Roadrunner, the company’s stock dropped after the charges we announced. Roadrunner’s stock was down 8.17 percent at 1:45 p.m. Monday.
Stoelting said the company is “cooperating fully” with federal officials conducting the current investigation.