The former CFO of Illinois-based Roadrunner Transportation Systems was sentenced to two years in prison on Tuesday for his role in a complex securities and accounting fraud scheme that cost its shareholders approximately $245 million.
U.S. District Judge Matthew F. Kennelly also sentenced Peter R. Armbruster, 62, of Milwaukee, to one year of probation after he is released from prison.
A federal jury found Armbruster guilty on four counts, including securities fraud, misleading Roadrunner’s auditors and two counts of falsifying Roadrunner’s books and records.
The judge did not determine the amount of restitution Armbruster must repay at the sentencing hearing.
According to court documents, prosecutors had sought a 12-year sentence, while Armbruster’s legal team pushed for home confinement instead of prison time.
“This sentencing sends a strong message that those who commit transportation-related financial fraud will be held accountable,” said Andrea M. Kropf, special agent in charge of the Department of Transportation Office of Inspector General, Midwestern Region, in a statement.
As of publication time Wednesday, Armbruster’s attorneys did not return FreightWaves’ call seeking comment.
The jury rendered its verdict against Armbruster in late July, following a 14-day trial in the U.S. District Court for the Eastern District of Wisconsin. The jury acquitted former controllers of Roadrunner’s truckload division, Mark Wogsland and Bret Naggs, of all charges.
Wogsland and Naggs were the first two former Roadrunner executives to be indicted by federal prosecutors in June 2018, nearly a year after the sophisticated scheme was discovered. It was nearly a year later before charges were leveled against Armbruster in April 2019. Roadrunner fired Armbruster in March 2017, two months after the trucking company announced it would have to redo, or restate its financial statements.
In 2017, Roadrunner Transportation Systems moved its headquarters from Cudahy, Wisconsin, to Downers Grove, Illinois.
Five months earlier, Roadrunner announced it was voluntarily delisting from the New York Stock Exchange and was deregistering from reporting requirements with the U.S. Securities and Exchange Commission and would be trading on the OTC Markets Group (OTCMKTS: RRT).
What went wrong?
Shortly after Roadrunner went public, it went on a buying spree and bought more than 20 smaller companies between 2010 and January 2017. It consolidated the results into its own financial statements, according to court documents.
However, in 2013, this flurry of acquisitions started to weigh on Roadrunner’s financial results.
From around 2013 to January 2017, Armbruster manipulated Roadrunner’s financial reports so it could hit prior earnings guidance and analysts’ projections for Roadrunner’s earnings per share, “while hiding significant expenses that were affecting Roadrunner’s financial performance,” court filings stated.
Eventually, Roadrunner’s financial challenges grew so severe that the company was in danger of violating performance-related debt covenants with its lenders.
Instead of opening the accounting books and sharing the true state of Roadrunner’s shaky financial conditions, the Securities and Exchange Commission said Armbruster used a wide array of deceptive accounting maneuvers to manipulate earnings. These included improperly deferring incurred expenses and spreading them over multiple quarters to minimize their impact on Roadrunner’s net earnings and avoiding writing down assets that were worthless and receivables that were uncollectable.
“Peter Armbruster failed to honestly perform his corporate duties, costing investors tens of millions of dollars in losses,” said Jay Greenberg, acting assistant director of the FBI’s Criminal Investigative Division, in a statement.
Former Roadrunner CFO guilty in $245M securities, accounting fraud schemeLeasing company sues trucking firm for $37 million, alleging breach of contract
Roadrunner sells off remaining truckload units; adds former Celadon head to board