With headquarters in Indianapolis, Celadon employs approximately 4,000 employees and operates roughly 3,400 tractors and 10,000 trailers. Photo by Alan Petersime.

A key lesson from the April 25 Celadon Group Inc. accounting fraud case is that a company's response to a federal investigation can be paramount to obtaining a deferred prosecution agreement and avoiding an independent compliance monitor.

That's the opinion of Julie Myers Wood, CEO of compliance consultant Guidepost Solutions, after Celadon announced Thursday that it signed a deferred prosecution agreement with the U.S. Department of Justice. The Indianapolis-based trucking company agreed to pay $42.2 million in restitution to shareholders to settle securities fraud charges for “filing materially false and misleading statements to investors and falsifying books, records and accounts.”

The agreement runs for five years and does not impose a compliance monitor on the company, which also settled with the U.S. Securities and Exchange Commission.

Celadon CEO Paul Svindland said in a statement, “The settlements with DOJ and SEC mark an important milestone. … We appreciate the government's recognition of the significant changes we have made, our ongoing commitment to legal and regulatory compliance, and our significant cooperation in the investigations.”

Svindland is part of a new executive management team hired during the probe in 2017. The management changes included the general counsel, though in fairness, the former GC was not cited in the DOJ's statement of facts while the ex-CEO, chief financial officer and chief operating officer were mentioned.

Celadon promoted Chase Welsh to general counsel and executive vice president for risk management in October 2017. Welsh, who previously served as vice president for risk management, did not respond Friday to a message seeking comment. He replaced former general counsel Ken Core, who retired after 17 years with the company.

Julie Myers Wood, CEO with Guidepost Solutions. Courtesy photo.

“DOJ continues its emphasis on holding individuals responsible,” Wood said. “Making personnel changes to address wrongdoing is often a key component before DOJ will even consider a [deal]. If you are senior leadership, it is likely that you will be terminated.”

The DOJ also charged one former executive who reached a plea deal. He was the president of a Celadon subsidiary that overvalued thousands of trucks in order to avoid booking losses. The DOJ continues to investigate other individuals.

Wood said, “It appears that Celadon cooperated with investigators and implemented remedial measures as quickly as possible,” including creating the position of chief accounting officer to enhance its internal audit function.

Wood noted that the DOJ release cited the auditing hire as a core remediation measure. “A robust internal audit program would likely have identified some of the falsified information,” Wood said.

Wood advised any company under investigation to cooperate fully, as Celadon did, and “waste no time undertaking remediation. Waiting to be told how to remediate, or waiting for the results of the investigation, does not convey to DOJ that a company is serious about fixing its problems.”

She said the decision by the DOJ to allow Celadon to self-report on compliance reforms and not to impose a monitor “must be a result of DOJ's satisfaction with the remedial measures already taken by the company and with the positive interactions during settlement. These Celadon facts should be instructive for other companies in arguing that a monitor is not necessary, even when conduct is egregious.”

Wood found one more valuable lesson for general counsel in the case. An attachment to the agreement provides a road map to what the DOJ expects in a compliance program. “It sets forth exactly how Celadon's internal controls, policies and procedures should be designed and implemented, including timelines,” she said. General counsel should benchmark their compliance programs against this, she suggested, “and be ready to discuss how they have met its standards” if the DOJ comes knocking.