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.
“We allege that Celadon knowingly engaged in a multi-faceted scheme to hide at least $20 million in losses from its investors, and lied to its auditors to conceal the scheme,” said Joel R. Levin, Director of the SEC’s Chicago Regional Office. “We will continue to hold issuers accountable for such serious breaches of trust to the investing public.”
The SEC’s complaint charges Celadon with fraud and with reporting, books and records, and internal control violations. 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.