The other shoe has dropped for a former Celadon CEO involved in a multiple-million dollar securities fraud scheme. The U.S. Securities and Exchange Commission has filed a civil suit against Danny Ray Williams less than one month after the U.S. Department of Justice filed a criminal indictment against him.
On May 9, the SEC filed the complaint against Williams for his role in coordinating a scheme that misled investors. The Celadon executive’s actions intentionally misrepresented tens of millions of dollars in losses. On April 25, the DOJ, SEC and Celadon all announced that the company would pay more than $42.2 million in restitution.
On April 22, Williams, former president of Celadon-owned Quality Companies, was charged with one criminal count of conspiracy to commit securities fraud. It was just a matter of time before the SEC would step in and file its civil lawsuit.
From 2016, Quality Companies owned hundred of trucks that were overvalued on its books by tens of millions of dollars. Quality Companies was unable to find drivers interested in leasing some trucks because of prior defects. Those defects had caused a significant fall in the trucks’ value. However, Williams and co-conspirators failed to disclose the millions of dollars lost as a result of the diminished market value of these assets.
Instead, Williams and high-ranking Celadon executives pursued a series of transactions designed to get rid of the trucks without publicly reporting the loss. The scheme involved Quality Companies trading hundreds of its older, less desirable trucks to a dealer in exchange for the dealer’s newer, more desirable trucks. Quality Companies then engaged in simultaneous “sales” and “purchases” of trucks with the dealer at inflated prices, which avoided disclosing the fact that the trucks were worth far less.
More specifically, Williams provided the dealership with a list of trucks Quality wanted to sell with the company’s overinflated book value for each truck. The dealership would then calculate how much the trucks were overvalued by then inflating its invoices to Quality Companies. The net effect was to create trades with values on both sides inflated by millions of dollars.
Over the course of three months in 2016. Quality Companies traded approximately 900 overvalued trucks for approximately 650 newer used trucks, according to court documents. Two emails reveal that the value of 862 Quality Companies trucks was inflated by more than $33 million. Two invoices from Quality Companies to the dealership totaled to approximately $43 million.
According to a DOJ news release, Celadon provided trucking and transportation services in the United States, Mexico and Canada. Between 2013 and 2016, Quality’s inventory grew rapidly, from approximately 750 tractors and trucks to more than 11,000. Quality began to struggle financially in 2016 as a result of a slowdown in the trucking market.
Celadon is required to pay full restitution of $42.2 million to shareholder victims harmed as a result of the crimes, which will be paid over several years. Furthermore, Celadon agreed to implement rigorous internal controls and cooperate fully with the DOJ’s ongoing investigation, including its investigation of individuals.
On May 9, Williams pleaded guilty to the criminal charge filed by the Department of Justice. A sentencing hearing is scheduled for Aug. 19. As of publication time, Williams’ attorneys have not submitted a response to the civil complaint.
Celadon is headquartered in Indianapolis.
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