Celadon Group Inc. announced a settlement with the SEC and the DOJ over allegations of accounting fraud.[1]  The company agreed to pay restitution of over $42 million in connection with a Deferred Prosecution Agreement with the DOJ, and to pay disgorgement of roughly $7.5 million in a parallel SEC settlement.  The disgorgement obligation is deemed satisfied by payment of the $42 million restitution amount.

The SEC and DOJ alleged that a Celadon subsidiary tried to cover up financial difficulties by falsely reporting inflated profits and assets.[2]  According to the government, Celadon had an aging fleet of hundreds of trucks whose book value greatly exceeded their fair market value.  Had Celadon sold the trucks on the open market, it would have had to recognize a loss on its financial statements.

To fix this problem, between June and October 2016, the Celadon subsidiary allegedly entered into a series of transactions with a third party to trade Celadon’s trucks for trucks owned by the third party.  Rather than sell at arms’ length, Celadon management allegedly sold the trucks at intentionally inflated values, and bought trucks from the third party at similarly inflated prices.  Celadon then booked the trucks at the inflated values.

According to the government, these inflated sales and assets were used to conceal multi-million-dollar losses from investors.  Celadon management allegedly misrepresented to the public that the trucks involved in the transactions were bought and sold at fair market value and properly accounted for.

In the SEC action, Celadon settled to charges of violating the antifraud, reporting, record-keeping, and internal-controls provisions of the federal securities laws.  In the DPA with the DOJ, Celadon resolved a single count of conspiracy to commit securities fraud.  Upon expiration of the DPA, the criminal charge will be dismissed with prejudice.

 

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[1]              http://otp.investis.com/clients/us/celadon/usn/usnews-story.aspx?cid=671&newsid=60873

[2]              https://www.sec.gov/news/press-release/2019-60; https://www.justice.gov/opa/pr/celadon-group-inc-enters-corporate-resolution-securities-fraud-and-agrees-pay-422-million