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SEC Sues Trucking Co. Exec Over Vehicle-Swapping Scheme

SEC Sues Trucking Co. Exec Over Vehicle-Swapping Scheme

SEC Sues Trucking Co. Exec Over Vehicle-Swapping Scheme

By Reenat Sinay of Law360.com

The president of a major trucking company subsidiary defrauded investors by hiding losses through a truck-swapping scheme and false financial reports, according to the U.S. Securities and Exchange Commission’s suit filed in Indiana federal court Thursday.

Danny R. Williams carried out the deceptive transactions in 2016 and 2017, when he was the head of Quality Companies LLC, a subsidiary of the Indianapolis-based Celadon Group Inc., which operates shipping lines in the U.S., Canada and Mexico, the SEC said.

In order to avoid a write-off when Celadon wanted to offload old vehicles, Williams swapped 900 of Quality’s old trucks for 650 newer ones from an unnamed dealer at inflated prices to create a paper trail that concealed the losses, according to the SEC.

“Williams falsely portrayed the truck exchanges to Celadon’s board of directors and its outside auditors as unrelated and unlinked purchases and sales that reflected current market values,” the SEC said. “Williams knew that this false portrayal of the transactions would allow Celadon to avoid reporting tens of millions of dollars in losses.”

The suit is the latest in a slew of SEC and government actions against Williams and Celadon.

The SEC filed a complaint against Celadon late last month seeking disgorgement of ill-gotten profits. In a parallel criminal case also brought in late April, Williams pled guilty to one charge of conspiracy, which carries a potential prison sentence of up to five years, according to court records. Additionally, Celadon recently agreed to repay investors $38.5 million to settle separate criminal charges brought by the U.S. Department of Justice.

In 2016, Quality managed some 11,000 trucks that it leased to independent drivers, but was facing lower demand that left the trucks overvalued on its books. Instead of facing an inevitable write-down, executives directed Williams to get rid of over 1,000 of the trucks in a way that wouldn’t cause a loss, court documents show.

In total, the inflated invoices for both sides of the truck trade allowed Quality to record a $1 million profit and concealed the fact that the prices were inflated to avoid Quality selling off trucks at a loss, according to the SEC.

By buying newer trucks at an inflated price, Quality essentially absorbed the markup on the old trucks it sold. The SEC further alleged that Quality then moved the newer trucks off Celadon’s books and onto the books of a joint venture the company had at the time with Element Fleet Management.

“By failing to recognize at least $20 million in impairment charges on its trucks, Celadon materially overstated the value of its assets and, by extension, materially overstated its income before income taxes, net income and earnings per share” in its public filings, the SEC said.

The SEC is seeking civil penalties from Williams.

An agency spokesman declined to comment Friday.

The SEC is represented in-house by Jonathan S. Polish, Amy S. Cotter and Jaclyn J. Janssen.

Williams is representing himself. His contact information was not immediately available Friday.

The case is SEC v. Williams, case number 1:19-cv-01878, in the U.S. District Court for the Southern District of Indiana.

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The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust