Freight trucking company Celadon Group Inc. has agreed to pay $42.2 million to settle fraud claims after filing false financial statements and lying to auditors in efforts to hide losses of its aging trucking fleet.
Indianapolis-based Celadon admitted to inflating the value of more than 1,000 used trucks through false transactions with a third party, the Justice Department and Securities and Exchange Commission said Thursday.
Under the terms of the Justice Department agreement, Celadon is required to pay restitution to shareholders. Celadon also agreed to implement internal controls and cooperate with the continuing probe, which includes investigations of individuals. The company no longer employs the executives involved in wrongdoing, the Justice Department said.
Celadon, which had disclosed the SEC investigation in 2017, said the two federal probes occurred before current leaders took the helm. In July 2017, the debt-laden trucking company replaced its chief executive with turnaround expert Paul Svindland.
“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,” said Mr. Svindland.
The company will focus on strengthening its corporate controls, pursuing a long-term capital structure and the turnaround of its core truckload transportation business, he said.
In a complaint filed Thursday in an Indianapolis federal court, the SEC charged Celadon with accounting fraud and internal control violations. The SEC alleged Celadon avoided recognizing at least $20 million in impairment charges and losses between June 2016 and April 2017. As a result, Celadon overstated earnings in financial reports for the year ended June 30, 2016, and the first two fiscal quarters of 2017.
The carrier, one of the largest North American trucking firms got into difficulty after rapidly expanding its former truck-leasing division Quality Companies LLC, which was at the center of the accounting scandal.
The expansion marked a big bet on truck-leasing in the years leading up to a 2016 slowdown in the trucking market. Quality also began to struggle because it owned a significant number of trucks with mechanical problems. The Quality fleet grew to more than 11,000 vehicles in 2016 from 750 in 2013 through a series of acquisitions.
Celadon had $856 million in revenue in 2017 in truckload operations, in which companies haul full truckloads of goods, usually to distribution centers. That made the company the 13th largest operator in that sector, according to SJ Consulting Group.
Celadon’s independent auditors began investigating misconduct allegations in early 2017, and according to federal prosecutors, some of the company’s quality-management executives made false representations. Later, the auditor said it couldn’t sign off on Celadon’s prior financial statements.