United States v. Peter Armbruster

Citation: Not availableDocket: 21-3370

Court: Court of Appeals for the Seventh Circuit; September 7, 2022; Federal Appellate Court

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Peter Armbruster, the former Chief Financial Officer of Roadrunner Transportation Systems, Inc., was tried and convicted on four counts of securities fraud and related charges, while acquitted on 11 counts. He appeals these convictions, arguing that the evidence presented was insufficient to support the jury's verdict. The court finds that, although the case against Armbruster was not straightforward, a rational jury could determine that the evidence was adequate for the guilty verdicts. Armbruster, a Certified Public Accountant with extensive experience, had been the CFO since Roadrunner’s merger with Dawes Transportation in 2005. He was responsible for preparing and certifying the company's consolidated financial statements, which included financial data from its subsidiaries, notably Morgan Southern.

Morgan Southern faced significant accounting issues at the time of its acquisition, including inadequate reconciliation of accounts and staffing deficiencies. In 2014, Roadrunner's then-controller initiated an audit of Morgan Southern's finances, revealing substantial inaccuracies, including an inflated balance sheet by $2 million to $5 million due to misvalued receivables and improper asset reporting of prepaid taxes. These findings were communicated to Armbruster after the departure of Morgan Southern's controller, Stephen Voorhees. Following Voorhees, a new controller, Christopher Lacey, identified similar financial discrepancies and escalated these concerns to senior management at Roadrunner.

In the third quarter of 2016, Hipke and Gettle expressed concerns to Armbruster regarding financial misstatements at Roadrunner. On November 14, 2016, Roadrunner submitted its Form 10-Q to the SEC, which inaccurately reported its financials in violation of GAAP, failing to adjust the carrying values of two balance sheet items. Following this filing, CEO Curt Stoelting became aware of the misstatements and promptly notified the Board of Directors. Roadrunner then alerted its independent auditor, Deloitte, Touche LLP, about the inaccuracies. On January 30, 2017, the company filed a Form 8-K, indicating that prior financial filings from 2014 to 2016 could not be relied upon, which led to a significant drop in share price. In January 2018, restated financials revealed a $66.5 million decrease in net income for the misstated periods, leading to further share price declines and subsequent criminal charges against Armbruster, along with former controllers Bret Naggs and Mark Wogsland, for securities and accounting fraud.

An 11-day jury trial in July 2021 resulted in a mixed verdict; Naggs and Wogsland were acquitted, while Armbruster was convicted on four counts, including falsifying accounting records and submitting a misleading management representation letter to Deloitte related to the third quarter of 2016. Armbruster sought to challenge the jury's verdict, arguing insufficient evidence supported the convictions and claiming that the evidence amounted only to corporate accounting errors rather than intentional fraud. The district court denied his motion, affirming that sufficient evidence existed for a reasonable jury to find him guilty. Armbruster's appeal is restricted to contesting the sufficiency of the evidence for his convictions, facing significant challenges due to the deference given to jury findings in legal reviews.

Counts Six and Seven of the indictment charged Armbruster with falsifying entries in the financial records of Roadrunner, a public company required to file accurate reports with the SEC. To convict him, the jury needed to find four elements proven beyond a reasonable doubt: (1) Roadrunner's obligation to maintain accurate records, including those of its subsidiary, Morgan Southern; (2) Armbruster's direct involvement in falsifying the IKEA Maersk receivable and prepaid taxes account; (3) the necessity for these accounts to reflect Roadrunner’s true financial state; and (4) Armbruster's knowledge and willfulness in the falsifications.

Witnesses testified to Armbruster's awareness of accounting issues as early as 2014, indicating he had sufficient information to recognize the need for adjustments to the overstated accounts. Stephen Voorhees, former controller of Morgan Southern, stated he informed Armbruster about significant overstatements and participated in discussions regarding the need for write-offs. Heather Hipke, vice president of finance, corroborated that Armbruster had received reports detailing the discrepancies and emphasized that he bore ultimate responsibility for the company's financial reporting.

A key piece of evidence was a November 2016 meeting where various accounting challenges were identified, including issues with Morgan Southern's accounts. At this meeting, Mike Gettle outlined the necessity for adjustments to comply with Generally Accepted Accounting Principles (GAAP), occurring shortly before Armbruster submitted a letter to Deloitte claiming ignorance of any material misstatements in Roadrunner’s financial statements.

The government presented evidence including a photo of a whiteboard showing Gettle’s notes on Roadrunner’s accounting issues, particularly the inflated carrying values of two Morgan Southern accounts. Witness Hipke expressed frustration over Armbruster’s indifference to resolving these issues, claiming he continuously deferred action by requesting further diligence instead of making necessary adjustments. Other witnesses corroborated that Roadrunner delayed necessary accounting adjustments, implicating Armbruster's awareness. Evidence included an email Armbruster forwarded to his personal account in November 2016, revealing he had prior knowledge of the overstatements since a 2014 email. Additional emails from 2014 to 2016 discussed necessary adjustments for various accounts, indicating that while there was no direct proof Armbruster read them, he did receive them. One email featured a note suggesting a full write-off for the IKEA Maersk receivable, and another confirmed Armbruster's directive against recording write-downs as of June 2015. This body of evidence led the jury to reasonably conclude that Armbruster knowingly permitted the overstatements in Roadrunner’s financial records, supporting the verdict on Counts Six and Seven regarding books and records violations.

Count Thirteen charged Armbruster with securities fraud for making false statements regarding Roadrunner's financial condition in the third quarter 2016 Form 10-Q. The jury was instructed to determine if the government proved three elements beyond a reasonable doubt: (1) a scheme to defraud shareholders and the public regarding the company’s stock; (2) Armbruster’s knowing execution of that scheme; and (3) his intent to deceive. The government utilized evidence from Counts Six and Seven, concluding that Armbruster allowed material misstatements in the 3Q-2016 financial statements, particularly in the overstated Morgan Southern IKEA Maersk and prepaid tax accounts. Testimony from Heather Hipke indicated Armbruster was aware of these accounting issues, as he attended a November 2016 meeting discussing them. An investor also testified about feeling misled by the company’s financial reporting.

Count Five charged Armbruster with misleading Roadrunner’s external auditor, Deloitte, by providing a false management representation letter. The jury needed to find five elements, including that Armbruster, as CFO, misled Deloitte during their audit, knowing it could lead to materially misleading financial statements. Armbruster did not contest various elements of this charge, particularly acknowledging his signature on the November 14, 2016 letter. The focus was on his alleged deliberate withholding of information regarding the overstated Morgan Southern account. Testimony from Hipke and Deloitte’s audit partner, Adam Krasno, suggested that Armbruster was aware of concerns about the accounting issues, which a jury could reasonably interpret as sufficient evidence of his wrongdoing.

The government presented substantial evidence of Armbruster's extensive accounting experience, allowing the jury to infer that he knowingly failed to communicate concerns about certain accounts to auditors, particularly through a misleading management representation letter. Armbruster argued that the government's evidence was too general, asserting that as CFO, he was distanced from specific account details and only had a broad understanding of the company's accounting practices. He claimed that he received numerous emails and attachments but did not have knowledge of the specific issues related to the accounts in question. Furthermore, he contended that his decision not to write down account balances was consistent with his practice of delaying adjustments until a complete analysis was completed, which he argued had not occurred before 2017.

Despite these arguments, the reviewing court emphasized a deferential standard of review, affirming the jury’s conclusions without reassessing evidence or witness credibility. The jury's mixed verdict indicated careful consideration of the evidence, even though the government did not provide direct admissions of fraud from Armbruster. The law permits the mental state element of fraud to be demonstrated through circumstantial evidence, and the court found no reason to overturn the jury's decision, ultimately affirming the conviction.