Indianapolis-based Celadon Group Inc. has agreed to pay more than $42 million in restitution to the federal government. The U.S. Department of Justice says the company committed securities fraud by "filing materially false and misleading statements to investors and falsifying books, records, and accounts."
Celadon entered into a deferred prosecution agreement in connection with the securities fraud charges. Court documents say a Celadon subsidiary, Quality Companies LLC, started seeing financial difficulties in 2016 and instead of reporting the issues to investors, members of Celadon’s and Quality’s senior management, allegedly falsely reported inflated profits and inflated assets through Celadon’s financial statements.
Between June and October of 2016, Quality engaged in a series of trades to dispose of its aging and unused trucks, according to the DOJ. Executives completed the trades with invoices purposely inflated well above market value, which were then used to hide millions of dollars of losses from investors.
Celadon and Quality management allegedly continued to falsely state both to the public and independent auditors that the trucks involved in the transactions were purchased and sold at fair market value, were properly accounted for in Celadon’s records, and were not trades. The executives in question are no longer employed at Celadon.
"Celadon executives misled the investing public for a simple reason: profit," said Assistant Attorney General Benczkowski. "Securities fraud harms all investors — from the most sophisticated to those everyday Americans saving for retirement, and the Criminal Division remains committed to investigating and prosecuting these complex crimes."
As part of the DPA, Celadon will pay full restitution of $42.2 million to shareholders affected by the scheme. The DOJ says under the agreement, prosecution of the company for securities fraud will be deferred for an initial period of five years to allow Celadon to "demonstrate good conduct." The agreement remains subject to approval by the court.
The DOJ says Celadon has already taken several steps toward remediation. In addition to replacing its executive management team, the company has created a new Chief Accounting Officer position and hired an internal audit staff member.
"The settlements with DOJ and SEC mark an important milestone," said Paul Svindland, chief executive officer of Celadon. "We have now settled the governmental investigations and other legal proceedings related to the events that arose under prior management. We appreciate the government’s recognition of the significant changes we have made, our ongoing commitment to legal and regulatory compliance, and our significant cooperation in the investigations. With these legal issues resolved, we will focus on continuing to strengthen our corporate controls and procedures and pursuing a long-term capital structure and the operational turnaround of our core, asset-based truckload transportation business."
Additionally, the government has reached a plea agreement with Danny Williams, the former president of Quality, who was charged with one count of conspiracy to commit securities fraud. The investigation is ongoing.