DOJ Indicts Trucking Company Executives for $245 Million Fraud Scheme
Two former executives of Roadrunner Transportation Systems Inc. will soon face criminal charges for a $245 million accounting and securities fraud scheme. Mark R. Wogsland, 53, and Bret S. Naggs, 52, have been indicted for purposefully engaging in “securities and accounting fraud scheme that misled shareholders, regulators, the investing public, and ultimately caused a loss of more than $245 million in shareholder value,” the Department of Justice’s Office of Public Affairs revealed in a statement.
Naggs was the former controller of the Truckload operating segment at Roadrunner and Wogsland used to be the controller and director of accounting at Roadrunner’s Truckload operating system. Both were top executives of the transportation company when it was formerly headquartered at Cudahy, Wisconsin; the organization is now headquartered at Downers Grove, Illinois.
Securities Fraud in the Trucking World
According to indictments filed in the Eastern District of Wisconsin, both men 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; one count of conspiracy to commit securities fraud and wire fraud; three counts of securities fraud; and four counts of wire fraud.” Acting Assistant Attorney General Cronan vowed that the Department of Justice Criminal Division “will vigorously pursue corporate executives who engage in deceptive and fraudulent accounting practices.”
Both Naggs and Wogsland were alleged to have committed the offenses between 2014 and 2017, with the help of co-conspirators. It all began when the men and their co-conspirators identified at least $7 million of overstated accounts on the balance sheet of Roadrunner Intermodal Services, one of the transportation company’s largest operating organizations. This amount “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.”
FBI: Significant Harm to Roadrunner and Its Shareholders for Personal Profit
The conspirators were supposed to write off the misstated accounts to reflect the true financial position of Roadrunner. The defendants chose not to do this and left the books as is in order to mislead the company’s shareholders, independent auditors, regulators and the investing public. Later in the year 2014, the men decided to write off some of the misstated accounts (instead of the full amount) by modifying the company’s balance sheet in little amounts every month. They developed cold feet and “reversed write-offs that had already been booked” after learning that the company’s balance sheet for its other operating companies was not encouraging.
This move made the majority of the company’s misstated accounts to remain on the balance sheet till early 2017, forcing Roadrunner to announce it would reissue a corrected version of its earlier released financial results. Three trading days after the announcement was made, the company’s shares dropped from $11.74 per share to $7.54, causing investors to lose over $160 million. After the company finally released its true financial position for 2014 to Q3 of 2016, its share prices slumped further from $7.14 to $4.90, causing shareholders to lose another $85 million plus.
The Justice Department worked with the FBI and the Securities and Exchange Commission among other partners to investigate the offense and work on a prosecution plan.