There is always a price to pay for everything, especially when it comes to fraud. As a business ethics speaker, business ethics consultant and book author, I know that even those who consider themselves “the best in the room,” get caught.
In the scandal concerning shipping and logistics company, Roadrunner Transportation Systems, Inc., former CFO Peter R. Armbruster was finally trapped in his own web.
The settled charges
The SEC has just settled a years’ long legal battle against Roadrunner and Armbruster who, according to the agency “was convicted of violating federal securities laws in a complex, $245 million securities and accounting fraud scheme.”
According to the government, the fraud went from July 2013 through January 2017. The company “manipulated its financial reports to hit prior earnings guidance and analyst projections. The [company] hid incurred expenses by improperly deferring them and spreading them over multiple quarters to minimize their impact on Roadrunner’s net earnings and avoided writing down assets that were worthless and receivables that were uncollectable.”
Allegedly, after Roadrunner was listed on the New York Stock Exchange, and infused with cash, went on a shopping spree for distressed shipping companies. It purchased about 22 companies, several of which underperformed and weighed down the financial results.
Instead of ethically reporting the effects of the poorly performing companies, the CFO decided to get creative with the books in order to minimize the financial impacts and artificially boost the stock price. The company falsified its balance sheet, to create what appeared to be a healthy cash reserve.
The publicly-traded company (finally delisted in 2020), “misstated its financial results in its earnings releases, earnings calls, and quarterly and annual reports from at least the second quarter of 2013 through the third quarter of 2016.”
To make matters worse, Roadrunner Transportation Systems, Inc., as with any publicly-traded company hid the fraudulent bookkeeping from its independent auditors.
Hiding from everyone
As a result of its fraud being “discovered” by the government, Roadrunner Transportation Systems, in addition to being ordered to cease and desist from committing or causing any future violations and pay more than $9.5 million in penalties. The CFO has faced severe penalties along with two controllers. They were allegedly running a rogue department and, most like, took advantage of the artificially inflated stock price.
If there is any silver lining, it that the CEO was not indicted. Nevertheless, he was forced out of the company. This was not surprising. As a business ethics speaker and business ethics consultant I know that undoubtedly the board and major shareholders turned against him for his lack of involvement in the financial dealings of the company.
The absence of oversight is hardly an excuse for the value of a company’s share price to plummet. It was the CEO’s ultimate responsibility to protect the investments of the shareholders and the companies who made markets in the stock.
Why would the CFO make the decisions he made? It may be that he and a handful of others stood to financially gain from the deception, while at the same time keeping their lucrative jobs.
Ultimately the CFO was the one who stamped approval on the underperforming and worthless acquisitions. Perhaps he and his associates rationalized that the more than 20 companies they purchased would somehow “wake-up,” and emerge to become solid performers – or, simply, that they could never admit they were wrong.
As the Roadrunner was running, it was finally overtaken by the slow but steady SEC.
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