The former chief operating officer and former CFO of Celadon have been charged with orchestrating an accounting fraud that enabled the trucking company to hide tens of millions of dollars in losses.
The charges against former COO William Meek, 39, and CFO Bobby Peavler, 40, came eight months after Celadon, one of North America’s largest truckload freight transportation providers, agreed to pay to settle $42.2 million to settle a federal investigation of the alleged fraud.
According to a federal indictment unsealed on Thursday, Meek and Peavler devised a complex “swap” scheme to mask Celadon’s overvaluation of older and unused trucks by selling them at inflated prices to cooperative third-party truck dealers in exchange for newer used trucks that Celadon purchased at similarly inflated prices.
As a result, Celadon was allegedly able to support the inflated values it had recorded for the trucks when it should have recognized an impairment charge of at least $20 million.
The U.S. Securities and Exchange Commission filed a parallel civil fraud complaint against Meek and Peavler on Thursday.
“These senior corporate executives at Celadon allegedly orchestrated a securities and accounting fraud scheme that misled shareholders, banks, accountants, and the investing public,” Assistant Attorney General Brian Benczkowski of the Justice Department’s Criminal Division said in a news release.
According to the SEC, the fraud began in 2016 when Celadon directed a subsidiary, Quality Companies, to sell its idle trucks.
“Quality arranged a series of deceptive transactions with two third parties,” the SEC said, because if it had sold “any significant portion of these trucks on the open market, Celadon would have had to record losses on its financial statements.”
One truck dealer calculated that it paid Quality at least $30 million more than Quality’s trucks were worth.
Peavler, who served as Celadon’s CFO from from June 2015 to October 2017, allegedly oversaw the improper accounting that falsely recorded the swaps as independent transactions and valued the trucks on Celadon’s books at the inflated amounts.
Former Quality President Danny Williams pleaded guilty in April to conspiracy to commit securities fraud.