Former Roadrunner CFO Guilty In $245M Securities, Accounting Fraud Scheme

The former CFO of Roadrunner Transportation Systems was convicted of violating federal securities laws in a complex, $245 million securities and accounting fraud scheme.

A federal jury convicted Peter R. Armbruster, 62, of Milwaukee, on four counts, including securities fraud, misleading Roadrunner's auditors, and two counts of falsifying Illinois-based Roadrunner's books and records.

The jury rendered its verdict on Thursday 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. 

As of publication time Monday, Roadrunner had not returned FreightWaves' call seeking comment.

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.

In March 2020, 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 RRT. 

In 2017, Roadrunner Transportation Systems moved its headquarters from Cudahy, Wisconsin, to Downers Grove, Illinois. 

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 SEC 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.

What Happens Next?

Armbruster is scheduled to be sentenced on Oct. 29 before U.S. District Judge Matthew F. Kennelly. He faces a maximum sentence of 25 years' in prison for securities fraud, 20 years for misleading auditors, and 20 years for each books and records violation, the U.S. Department of Justice said in a statement Tuesday.

Read related articles:

• Roadrunner announces plans to delist from NYSE
• Former Roadrunner CFO joins two others under indictment; SEC also levies charges

Click for more articles by FreightWaves Senior Editor Clarissa Hawes.
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