Last updated on June 20th, 2019 at 10:19 am
The former chief financial officer of Roadrunner Transportation Systems Inc. faces federal criminal charges and a civil case brought by the SEC for his alleged role in a scheme that lost the company’s shareholders $245 million.
A grand jury indicted Peter Armbruster, of Milwaukee, on 14 charges related to making false entries in a public company’s books, securities, bank and wire fraud and making false statements to a public company’s accountants.
Armruster was CFO at Roadrunner, a formerly Cudahy-based trucking and logistics company now based in Downers Grove, Illinois, from 2005 to March 2017. He was fired after the company announced it had discovered accounting discrepensies in two of its subsidiaries. He did receive a nearly $240,000 severance payment, according to the company’s securities filings.
Roadrunner eventually determined the company had overstated its net income by $66.5 million from 2011 through the third quarter of 2016.
Armbruster’s attorney did not immediately respond to a request for comment.
“Our economic vitality depends upon shareholders having accurate information about publicly traded companies,” said Matthew Krueger, U.S. Attorney for the Eastern District of Wisconsin. “This case demonstrates the Department of Justice’s commitment to protecting the integrity of securities markets.”
Two other former Roadrunner Transportation officials, Mark Wogsland and Bret Naggs, were charged last year in the case and are named in the superseding indictment filed Tuesday. Naggs was controller of Roadrunner’s truckload segment from July 2014 through October 2015. Wogsland was in the same role from 2010 through 2014 and then served as director of accounting for the segment, reporting to Naggs.
All three men are also defendants in a civil case filed by the Securities and Exchange Commission on Wednesday.
The complaints generally allege that Armbruster, Wogsland and Naggs concealed expenses and overstated assets, including uncollectible debts and receivables, on the company’s balance sheet. The trio also allegedly engaged in “cushion” accounting to inflate the company’s financial performance.
Roadrunner made more than 20 acquisitions of smaller shipping companies from 2010 to early 2017. Many of those deals included contingent earnout provisions that would allow the seller to receive additional compensation based on the company’s performance. Roadrunner was required to evaluate the earnout liability based on the acquired company’s performance.
Instead of reducing the liability when required to, Armbruster allegedly inflated the company’s earnings projections to support a valuation that would help meet analyst estimates. The SEC complaint says those actions created extra income Roadrunner could use to hide deferred expenses in future quarters and hid the fact that recent acquisitions were underperforming.
The SEC complaint identifies nearly $9 million in allegedly overstated earnout liabilities from 2013 to 2016. The company also allegedly hid that it had missed analyst estimates on several occasions, including by 53 percent in one case. By the third quarter of 2016, the company was allegedly hiding from lenders and investors that it had breached its debt covenants.
According to the SEC, Armbruster and Wogsland both profited from selling stock in Roadrunner when they allegedly knew the company’s public financial statements were incorrect. Armbruster received at least $128,000 in bonuses tied to the company’s performance while allegedly manipulating results. He also exercised stock options in February 2015 that resulted in a nearly $310,000 gain. Wogsland also exercised options and sold stock for a nearly $230,000 profit in March 2015, according to the complaint.
The SEC complaint seeks an order requiring all three men to disgorge any ill-gotten gains, unspecified civil penalties and blocking them from being an officer or director of a public company.