Recently, the Indiana trucking company, Celadon, agreed to pay restitution of $42.2 million to its shareholders after it settled with the U.S. Department of Justice on securities fraud charges. Celadon is a publicly traded company that provides trucking and transportation services in the United States, Mexico and Canada.
The settlement requires that Celadon pay $5 million within 90 days. Celadon has until January 2023 to pay the remainder. It will have to make annual payments tied to its financial performance until January 2023. If a balance remains after 2023, it is required to pay a lump sum by June 2024. Celadon is allowed to credit the amount it already paid to investors in a class action lawsuit involving the same towards this settlement.
Nature of the Securities Fraud
According to federal prosecutors, Celadon acknowledged that it was “filing materially false and misleading statements to investors and falsifying books, records and accounts.” Caledon grew one of its divisions, Quality Cos. at a rapid pace. It grew its fleet of tractors from 750 trucks to over 11,000 during the years 2013-2016.
However, the company began to struggle financially in 2016 due to a slowdown in the trucking market. At the same time, the company also had a large number of trucks with mechanical issues that remained idle, losing income for the company because no one wanted to lease them.
Prosecutors charge that when the company began to struggle financially, instead of reporting the true value of their assets, the company inflated the value of the trucks. They claim that senior managers arranged a series of trades as a means of disposing the idle trucks. In a span of three months in 2016, the company traded approximately 900 trucks that were overvalued for 650 new trucks. The company accounts reveal the trucks’ reported values were inflated by more than $33 million.
The former President of Quality Cos. was also charged with one count of conspiracy to commit securities fraud, making false statements, and falsifying books and records of a public company. He reached a plea agreement with the prosecutor. He may be sentenced up to five years in prison.
The settlement that was reached is a deferred-prosecution agreement. This essentially means that Celadon is on probation and must demonstrate good conduct for the next five years. The company further agreed to implement rigorous internal controls and has cooperated fully with the Department’s ongoing investigations.
The Department of Justice applauded the company for its cooperation with the investigation and its efforts for remediation. The company replaced its senior management. The Department of Justice was encouraged by the new management’s emphasis on instituting an ethical corporate culture.
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