Two former accounting executives at Roadrunner Transportation Systems Inc. are each charged with nine fraud-related counts stemming from an investigation into the company’s accounting practices.
Prosecutors charged Bret Naggs and Mark Wogsland, both of Cedarburg, last week with counts related to wire and securities fraud and making false statements to a public company’s account. John Cronan, acting assistant attorney general of the Justice Department’s criminal division, said the alleged scheme ultimately caused the loss of $245 million in shareholder value.
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.
According to the indictment, filed in the U.S. District Court for Eastern Wisconsin, the pair allegedly sought to defraud investors and mislead auditors and regulators by leaving assets with little value on the company’s balance sheet and deliberately concealing overstated accounts.
The indictment claims the scheme was intended to hide the “true financial condition” of the company while also maintaining and increasing its stock price.
Roadrunner, then based in Cudahy, announced in early 2017 that it had identified accounting issues dating back to 2014 that would result in up to $25 million in adjustments to its results. A year later, after having replaced its executive team, taken on new investors and moved its headquarters to Illinois, the company announced the results of an investigation that found $66.5 million in overstated profits.
The new management team said the increasing complexity brought on by more than 20 acquisitions made since 2010 and a lack of internal controls caused the company to overstate its net income.
Wogsland was tasked in 2014 with investigating $4.5 million issues in the balance sheet of Roadrunner Intermodal Services Inc., a group of operating companies including Morgan Southern, which Roadrunner acquired in 2011, according to the indictment.
Along with other employees, he allegedly identified a number of issues including accounts with no activity for more than a year, more than $1.1 million in assets for prepaid taxes and licenses for prior years, leaving them with little value and $9.7 million in debt related to a lease purchase program.
The program allowed drivers to lease a tractor from third parties with Roadrunner acting as a guarantor and advancing maintenance, fuel and other costs to the driver. Wogsland and other employees determined by April 2014 the company had $3.4 million in uncollectable debt in the program from drivers who had left the company, according to the indictment.
By September 2014, Naggs and Wogsland allegedly had identified more than $7.5 million in misstated accounts within Roadrunner Intermodal, but instead of writing off the accounts, they along with an unnamed company executive, directed employees to leave the accounts on the company’s balance sheet and not take any corrective action.
In late 2014, Naggs and Wogsland allegedly developed a plan to write off the accounts in small amounts on accounts that had known issues. They abandoned that plan when the company’s deteriorating financial performance in other operating companies became a concern.
They also allegedly deliberately concealed information about the accounts from Roadrunner’s accounting firm, including Wogsland directing an employee “not to send ‘examples’ or documents (to the firm) that could draw attention to the misstated accounts or other accounting issues,” the indictment says.
Both Naggs and Wogsland could each face up to 200 years in prison if convicted on all nine counts they are charged with.