The former CFO of Roadrunner Transportation Systems has been charged with using “cushion” accounting and other deceptive accounting methods to manipulate the trucking company’s earnings so it could meet Wall Street estimates.
The U.S. Securities and Exchange Commission said Peter Armbruster was part of a fraudulent scheme that “presented the illusion of a company that performed in line with analyst expectations when, in reality, Roadrunner’s performance was subpar.”
Armbruster, 60, and two former Roadrunner controllers — Bret Naggs, 52, and Mark Wogsland, 54 — used deceptive accounting to hide “significant expenses that were affecting Roadrunner’s financial performance,” the SEC said in a civil complaint.
Naggs and Wogsland were indicted on related criminal charges in June 2018. Armbruster was arrested on a superseding indictment in that case on Wednesday.
After the alleged fraud was disclosed in January 2017, Roadrunner’s stock plunged, causing $245 million in shareholder losses.
“These former, high-ranking executives deprived investors of truthful, reliable information on Roadrunner’s financial health,” Joel R. Levin, director of the SEC’s Chicago Regional Office, said in a news release. “Instead, they employed deceptive accounting to manipulate earnings in an effort to chase earnings targets and projections.”
Armbruster served as Roadrunner’s CFO for about 12 years until he was fired in March 2017. According to the SEC, the company embarked on an acquisition spree that by January 2013 had “started to weigh on [its] financial results.”
“The financial challenges grew so severe that Roadrunner was in danger of violating performance-related debt covenants the company had entered into with its lenders,” the SEC noted.
Rather than offer a true accounting of Roadrunner’s financial condition, Armbruster and his colleagues allegedly hid incurred expenses, avoided writing down assets that were worthless and receivables that were uncollectable, and manipulated earnout liabilities related to acquisitions, in effect, creating an income “cushion” that could be accessed in future quarters to offset expenses.
“These fraudulent accounting tools worked in tandem, allowing defendants to steer Roadrunner’s financial results toward a desired target,” according to the SEC.
The criminal charges against Armbruster include wire fraud, securities fraud, and bank fraud.