US SEC Charges Truckload Freight Company with Accounting Fraud

The United States of America Securities and Exchange Commission today charged Indianapolis-based Celadon Group Inc. with an accounting fraud that allowed the truckload freight company to avoid disclosing substantial losses and misrepresent its financial condition.

In a complaint filed in federal court in Indianapolis, the SEC charged that between mid-2016 and April 2017, Celadon avoided recognizing at least $20 million in impairment charges and losses – almost two-thirds of its 2016 pre-tax income – by selling and buying used trucks at inflated prices from third parties. 

According to the complaint, as a result of the alleged scheme, Celadon overstated its pre-tax and net income and earnings per share in its annual report for the period ending June 30, 2016, and in its subsequent public filings for the first two fiscal quarters of 2017.

The SEC’s complaint charges Celadon with violating the antifraud provisions of Section 10(b) of the Exchange Act and Rules 10b-5 thereunder and the books and records and reporting provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Celadon admitted to those violations and agreed to a permanent injunction and to remediate the material weaknesses in its internal control over financial reporting. Celadon has also agreed to pay $7 million in disgorgement, which will be deemed satisfied by Celadon’s payment of restitution in an action announced today by the Department of Justice. The settlement is subject to court approval.

The SEC’s case against Celadon is the latest in a line of actions brought against companies or their executives for committing accounting fraud, by entering into sham agreements with third-parties, suppliers or customers, including SEC v. Tangoe, Inc. et al., 3:18-cv-01479 (D. Conn. 2018); SEC v. Axesstel, Inc., et al., 3:18-cv-01486-L-AGS (S.D. Cal. 2018); SEC v. Bhushan Dandawate, No. 18-cv-4927 (N.D. Ill., 2018); SEC v. Quadrant 4 System Corp., et al., No. 17-cv-4883 (N.D. Ill., 2017).

The SEC’s investigation, which is continuing, is being conducted by Jaclyn Janssen, Trevor Schumacher, Jonathan Polish, Thomas E. Vincus, and Amy S. Cotter of the Chicago Regional Office. The SEC appreciates the assistance of the U.S. 

Attorney’s Office for the Southern District of Indiana, the Department of Justice, Fraud Section, Criminal Division, the Federal Bureau of Investigation’s Indianapolis Division, and the U.S. Postal Inspection Service.