Lawsuit alleges SEC investigation, financial cover-up at Celadon

A Celadon Group Inc. investor has filed a lawsuit alleging that the Indianapolis-based trucking company is misleading shareholders about its financial status and covering up a U.S. Securities and Exchange Commission investigation into the company.

Denis Chavez filed the civil suit Wednesday in U.S. District Court in the Southern District of New York. The defendants named in the suit include Celadon and two of the transportation company’s executives: CEO and President Paul Will and Chief Financial Officer Bobby Peavler.

Chavez is asking that the court certify the suit as a class-action case on behalf of investors who acquired Celadon stock between Dec. 30 and April 18.

In the court filing, Chavez says he was harmed financially because he purchased Celadon stock at “artificially inflated prices.” The company’s stock prices declined following two research reports published this month by Celadon short-seller Prescience Point LLC.

Chavez said he purchased 188 shares of Celadon on June 30, 2016, for $8.20 per share, and he purchased another 174 shares on March 24 for $6.83 per share. He sold 362 shares on April 13 for $4.61 per share.

Celadon executive Will told IBJ on Thursday that the company is aware of the suit.

“We’re reviewing it and engaging counsel to advise us,” Will said, noting that the suit is based on reports from short-sellers, who make money when a company’s share price drops.

Will said he’s not aware of any current SEC investigations of the company. “We have not been notified by the SEC," he said.

The SEC declined to respond to an IBJ query about whether it is investigating Celadon.

Chavez’ suit quotes at length from the Prescience Point reports, which focus on a joint venture between Celadon and Element Transportation LLC. The joint venture focuses on truck leasing and includes assets formerly held by Celadon, Element and a third party, 19th Capital. 

According to a Celadon release issued Dec. 30, Celadon contributed cash and lease equipment worth $100 million in exchange for 49.99 percent equity in the joint venture. Citing a Prescience Point report, Chavez’ lawsuit says Celadon misrepresented its actual investment through "accounting gimmicks."

Prescience outlined its argument in a report issued April 5. On that same day, shares of Celadon dropped from $6.25 to $5.40, which the suit says is “directly attributable” to the Prescience report.

Chavez’ suit also cites a separate Prescience report published Wednesday that alleges Celadon is under SEC investigation. 

In that report, Prescience says it made a Freedom of Information request asking the SEC for investigative records concerning Celadon dating back to Jan. 1, 2013. The SEC declined this request, Prescience said, on the grounds that releasing the records could “reasonably be expected to interfere with ongoing enforcement proceedings.”

Celadon’s stock price dropped again after the release of this report, Chavez’s suit says. Celadon’s closing price on Tuesday was $4.40 per share, the suit says, and that fell to $3.85 as of 1 p.m. Wednesday. (Shares of the company were trading at $4.20 as of midday Thursday.)

Chavez is asking the court to certify his action as a class-action suit. He also requests that the court order the defendants to pay compensatory and punitive damages, as well as the plaintiffs’ costs and fees. The suit does not name a specific dollar amount that Chavez is seeking. 

Celadon has not yet filed a legal response to the suit.

This is not the first time Celadon has faced heat for its financial disclosures. In October, the investing site Seeking Alpha published a report in which author Jay Yoon raised a number of questions about Celadon’s financial reporting.

Celadon responded to Yoon’s queries a week later in a letter which the company also shared as an SEC filing. In its response, Celadon told Yoon that “the article contained a number of errors and misplaced assumptions” with which the company disagreed.