Federal prosecutors have charged two former logistics executives withsecurities fraud. The pair also used a complicated accounting process to mislead shareholders and officials about the value of company-owned trucks.
Investigators uncovered the scheme in 2017. Following the revelation, the company’s stock prices plummeted, and the NYSE delisted the company’s offering. Following the announcement of charges against the former executives, the company declared bankruptcy and laid off about 3,800 employees nationwide. The company was unable to pay loan covenants and could not secure new financing.
According to investigators, the company expanded its truck leasing company between 2013 and 2016. The company began with about 750 trucks and grew that number to 11,000 by 2016. Following the rapid expansion, the value of the company’s fleet dropped substantially, due to changes in the used-truck market. Additionally, many of the newly purchased trucks used a defective engine, which made drivers reluctant to lease or drive them.
The executives falsely valued the trucks on the company’s books at about four times their true market value. Instead of restating the value of the damaged trucks, the executives concocted a scheme to bury the losses. As part of the scheme, the executives traded the defective trucks for newer ones. The trades were characterized as purchases and sales, and the values of the traded trucks were inflated to cover the losses.
Ultimately the company traded about 1,000 defective trucks for 600 newer ones but hid the losses on the trades. They also convinced the trading partner to write a check for $25M, which the company would return after the end of the quarter. Investigators concluded that shareholders lost about $44M in the deal.
The arrested executives could face decades in prison if convicted on all nine counts of conspiracy to commit wire fraud, bank fraud and securities fraud. They also face charges of securities fraud; making false statements and destroying evidence.
Los Angeles securities fraud attorney
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Photo Credit: TruckPR, via Flickr.com