This securities class action bases its claims on Roadrunner Transportation Systems, Inc.’s statements that it had effective internal controls over its financial reporting. According to the complaint, the company did not have such control, and its claims that it did are violations of the Securities Exchange Act of 1934.
The class for this action is all investors who acquired Roadrunner common stock between May 8, 2014 and January 30, 2017.
Roadrunner is a leading asset-light transportation and logistics service provider offering worldwide supply-chain services.
During the class period, the complaint notes that Roadrunner made regular public filings with the Securities and Exchange Commission (SEC) on its results for various quarters of 2014, 2015, and 2016 and for the full years of 2014 and 2015.
The complaint asserts that in these filings, the company claimed that its internal controls over financial reporting were effective for the period covered. Each of the filings also had signed Sarbanes-Oxley certifications attesting that financial statements were accurate, internal controls were effective, and all fraud was disclosed.
However, the complaint claims that these statements were false or misleading, because the company did not in fact have control over its financial reporting.
On November 10, 2016, the company filed a Form 12b-25 to say that it would be late in filing its report for the third quarter of 2016, saying that the company “identified a mistake in the calculation of its cash flow leverage ratio for the four quarters ended September 30, 2016.” It said that the company “would not be in compliance with its cash flow leverage ratio financial covenant … absent a waiver … by the required lenders under the credit agreement” and noted that it had been in talks with its lender, US Bank National Association.
Still, on November 14, 2016, the company filed a Form 10-Q for its third quarter of that year and attested that its internal controls over financial reporting were effective.
On January 30, 2017, Roadrunner issued a press release listing various financial statements and associated reports that “should no longer be relied upon” beginning with its Form 10-K annual report for 2014 and ending with the third-quarter Form 10-Q for 2016.
The company said it had “identified various accounting errors” at two of its subsidiaries that “will require prior period adjustments to Roadrunner’s results of operations between $20 million and $25 million.” It said that the errors “principally relate to unrecorded expenses from unreconciled balance sheet accounts including cash, driver and other receivables, and linehaul and other driver payables.”
At this news, the company’s stock suffered a drop of roughly 33%.