Former Roadrunner executives indicted for $245M accounting fraud
June 20, 2018
Two former executives of Roadrunner Transportation Systems have been charged for their alleged role in an accounting scheme that cost shareholders $245 million, federal court documents reveal.
On June 12, Bret Naggs and Mark Wogsland, both former certified public accountants for Roadrunner, were indicted on nine counts in the U.S. District Court in the Eastern District of Wisconsin for what the Department of Justice called a “complex accounting and securities fraud scheme.” Naggs and Wogsland were responsible for overseeing accounting and financial statements for Roadrunner’s truckload segment.
The indictment alleges Naggs and Wogsland were unjustly enriched through the continued receipt of compensation, stock and other benefits. The nine charges are one count of conspiracy to make false statements to a public company’s accountants; one count of conspiracy to commit securities fraud and wire fraud; three counts of securities fraud; and four counts of wire fraud.
“This indictment makes it clear that the FBI, its fellow field offices, and federal partners are committed to working together to hold those accountable who would attempt to manipulate the market,” said J.C. Hacker, Acting Special Agent in Charge of FBI Atlanta, in a statement. “This alleged fraud caused significant harm to Roadrunner and its shareholders for personal profit.”
As a publicly traded company, Roadrunner is required to file annual and quarterly reports with the U.S. Securities and Exchange Commission. These reports contain financial statements that are supposed to accurately and fairly represent the financial condition of the company. Roadrunner also provided financial information to shareholders and the investing public.
According to the indictment, Naggs, Wogsland and other co-conspirators defrauded shareholders and mislead independent auditors and regulators from 2014 to 2017 about the actual financial condition of Roadrunner.
In 2014, Naggs and Wogsland identified misstated accounts on balance sheets totaling $7.5 million. Of the outstanding receivables, debts arising from Roadrunner’s lease purchase program were among the most significant, accounting for as much as $10 million. More than $3 million was considered “uncollectable” because many drivers who owed money had left the company, making it unlikely that the funds would be recovered in full.
Despite discovering these financial issues, Naggs and Wogsland left essentially worthless assets and receivables on the balance sheet instead of writing them off. The two executives also deliberately concealed overstated assets and other misstated accounts. These misstated accounts were left on the balance sheet throughout 2014-2017, fraudulently boosting Roadrunner’s financial performance.
From 2014 to 2017, more than 38 million shares of Roadrunner stock were held. In January 2017, Roadrunner announced that it had identified potential accounting discrepancies and accounting errors. Just one day before the announcement, Roadrunner stock was trading at $11.74 a share. By the day after the announcement, stock prices dropped to $7.54 a share, a loss of more than $160 million.
One year later on Jan. 31, Roadrunner announced restated financial results. On Jan. 30, stocks were trading at $7.14. By Feb. 2, Roadrunner stock plummeted to $4.90 a share, costing shareholders an additional $85 million.