Celadon admits it is under federal criminal investigation

Indianapolis-based trucking firm Celadon Group Inc. says federal investigators are conducting a criminal investigation of the financial-reporting issues that the company has been working to resolve for more than a year.

Celadon disclosed last fall that the U.S. Securities and Exchange Commission was investigating the firm, but this week’s disclosure is the first time the company mentioned a criminal inquiry.

“The company is aware of investigations by the U.S. Securities and Exchange Commission and the Criminal Division of the United States Department of Justice into events and circumstances related to the previously announced (financial) restatement,” Celadon said in a statement issued Tuesday afternoon. “The company is cooperating with these ongoing investigations, including responding to subpoenas and meeting with investigators through counsel.”

The statement did not make clear whether the inquiry was limited to the company or also involved members of the executive team that led Celadon during the periods when it released inaccurate financials.

Celadon did not return phone calls seeking comment about the investigations.

The Department of Justice told IBJ it would not “confirm, deny or otherwise comment on the existence or non-existence of an investigation.”

In May 2017, after Celadon’s auditor, BKD LLP, raised concerns about financial reporting issues, the company’s board of directors launched an investigation into the matter. In April, Celadon officials said the investigation revealed problems that were much more extensive than previously anticipated. Findings showed the company overstated some of its earnings by as much as $250 million in the three years that ended in 2016.

Celadon said its investigation revealed “errors that will require adjustments to the previously issued 2014, 2015, 2016 and 2017 financial statements” and to statements potentially even older than that.

Most of the adjustments related to equipment sales that took place between former Celadon subsidiary Quality Cos. and 19th Capital, a joint venture between Celadon and the Pennsylvania-based private equity firm Larsen MacColl Partners. Also involved was another joint venture formed by Celadon and Canada-based Element Fleet Management.

Celadon disposed of Quality Cos. in 2017. Most of Celadon’s senior leadership team, including its CEO and CFO, has been replaced since those problems came to light last year.

While it works through its issues, Celadon has not been releasing any financial statements. As a result, the New York Stock Exchange delisted the company’s stock this spring. Shares of Celadon now trade over the counter.

Celadon said Tuesday that it is working to issue restated financials and audited financial statements for its 2017 and 2018 fiscal years. It said the new statements will be filed in either the last three months of 2018 or the first three months of 2019.

In Tuesday’s statement revealing the criminal investigation, the company said existing lenders have agreed to extend its revolving credit agreement through Dec. 12. Celadon also said it’s dropping its previous plans to pursue a $200 million term loan and instead will pursue a $100 million asset-based line of credit.

“We would have been pleased to afford our stakeholders the certainty of having completed the refinancing process,” Celadon CEO Paul Svindland said in the statement. “However, both the Company’s performance and the industry backdrop have improved since the proposed terms were negotiated, and we are optimistic about our ability to source alternative financing.”