United States v. Armbruster
| Decision Date | 07 September 2022 |
| Docket Number | 21-3370 |
| Citation | 48 F.4th 527 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Peter ARMBRUSTER, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Jonathan H. Koenig, Rebecca Taibleson, Attorneys, Office of the United States Attorney, Milwaukee, WI, John-Alex Romano, Jeremy Raymond Sanders, Francesco Valentini, Justin Weitz, Attorneys, Department of Justice, Criminal Division, Washington, DC, for Plaintiff-Appellee.
Andrew Richard DeVooght, Laura K. McNally, Attorneys, Loeb & Loeb LLP, Chicago, IL, for Defendant-Appellant.
Before Sykes, Chief Judge, and Scudder and St. Eve, Circuit Judges.
Peter Armbruster, former Chief Financial Officer of Roadrunner Transportation Systems, Inc., a public company, went to trial on criminal charges of securities fraud, falsifying accounting records, and related counts. The jury returned a mixed verdict, acquitting him on 11 counts but convicting on the remaining four. Armbruster now challenges those convictions, contending that insufficient evidence supports the adverse verdicts. While the case against Armbruster may not have been open-and-shut, a rational jury could have concluded that the government presented enough evidence to support guilty verdicts on the challenged counts. Because the law requires no more, we affirm.
Armbruster, a Certified Public Accountant with prior experience working at a Big Four accounting firm, began serving as the controller for Dawes Transportation in 1990. When Dawes merged with Roadrunner in 2005, Armbruster stayed on as Roadrunner's Chief Financial Officer. In the years that followed, Roadrunner grew rapidly, acquiring nearly 30 transportation companies and going public in 2010. Armbruster's responsibilities as CFO included the preparation, certification, and filing of Roadrunner's consolidated financial statements with the Securities and Exchange Commission. The company's financial statements—consolidated as they were—effectively incorporated the financial affairs of certain of Roadrunner's subsidiaries, including Morgan Southern, a Georgia-based transportation company.
Consolidating Morgan Southern's financial statements proved challenging. At the time of its acquisition by Roadrunner, Morgan Southern's own accounting practices were lagging, with the company not regularly reconciling account balances and lacking adequate staffing.
In 2014, Roadrunner's then-controller, Brock Even, recognized these shortcomings and spearheaded an effort to examine the accuracy and integrity of Morgan Southern's financial accounting and reporting practices. Even enlisted help from two of Roadrunner's then-departmental controllers, Bret Naggs and Mark Wogsland, who traveled to Morgan Southern's home office in Georgia to examine the company's books and records.
In November 2014 Stephen Voorhees became Morgan Southern's controller. Balance sheet review was a key priority for him in that position. But when Voorhees left Roadrunner in April 2016, many deficiencies in Morgan Southern's accounting remained unresolved. On his way out, Voorhees conveyed his key concerns and findings to a group of Roadrunner accountants, with Armbruster too receiving the information.
This is where the particulars start to matter. Voorhees found that Morgan Southern had inflated its balance sheet by at least $2 million and perhaps as much as $4–5 million. The overstatement was in part the product of the company carrying a receivable from IKEA Maersk above its net realizable value—above the amount Morgan Southern could reasonably expect to collect. And so too did Voorhees find that Morgan Southern continued to report (as an asset on its balance sheet) prepaid taxes when, in fact, the underlying taxes were due and owing. These circumstances required the two account balances to be reduced, which, in turn, would have resulted in an expense against Morgan Southern's income. It was these two accounting items that would become a major problem for Armbruster.
After Voorhees's departure in April 2016, Morgan Southern hired Christopher Lacey as its new controller. Lacey promptly noticed the company's accounting problems, including the overstatement of the IKEA Maersk receivable and prepaid taxes account, and relayed his concerns up to Roadrunner's vice president of finance Heather Hipke and new Chief Operating Officer Mike Gettle. Hipke and Gettle reacted with similar trepidation and raised their own concerns with Armbruster in the third quarter of 2016.
On November 14, 2016, Roadrunner filed its 2016 third quarter Form 10-Q with the SEC. The filing included the company's consolidated financial statements, which reflected no adjustments of the carrying values of the two Morgan Southern balance sheet items and, it would turn out, other misstatements. In short, Roadrunner's financials did not comply with generally accepted accounting principles, often shorthanded GAAP.
Shortly after that third-quarter filing, Curt Stoelting (who, by this point, was Roadrunner's Chief Executive Officer) learned through Gettle of the misstatements in Roadrunner's financial statements. Stoelting too reacted with alarm and promptly informed Roadrunner's Board of Directors. From there the dominoes started to fall: Roadrunner informed its independent auditor, Deloitte & Touche LLP, of the material misstatements in the third-quarter financial statements. And on January 30, 2017, Roadrunner filed a Form 8-K informing investors that they could no longer rely on any of the company's financial filings from 2014 or 2015 or its quarterly reports for the first three quarters of 2016. Roadrunner's share price dropped significantly over the next few days. In January 2018 the company filed restated financial statements, reporting a decrease of approximately $66.5 million in net income over the misstated periods. Roadrunner's share price plummeted again and in time criminal charges followed.
Most relevant here are the criminal charges ultimately brought against Armbruster and two former departmental controllers, Bret Naggs and Mark Wogsland, alleging various forms of securities and accounting fraud. An 11-day jury trial ensued in federal court in Milwaukee in July 2021, with the government presenting witness testimony from past and present Roadrunner associates and providing the jury with a range of documentary evidence, including emails to and from each defendant and related financial analyses from the relevant periods. In the end, the jury returned a mixed verdict, acquitting Naggs and Wogsland on all counts but convicting Armbruster on four of the 11 charges brought against him.
Armbruster's convictions came on two counts of knowingly falsifying Roadrunner's accounting records by materially misstating the carrying values of the Morgan Southern IKEA Maersk receivable and prepaid taxes account, 15 U.S.C. §§ 78m(b)(2), (5), id. § 78ff(a), 18 U.S.C. § 2 (Counts Six and Seven); one count of fraudulently influencing Deloitte & Touche LLP, Roadrunner's external auditor, by submitting a false and misleading management representation letter relating to the third quarter of 2016, 15 U.S.C. § 78ff(a), 18 U.S.C. § 2 (Count Five); and one count of filing fraudulent financial statements with the SEC relating to that same quarter, 18 U.S.C. §§ 1348, 2 (Count Thirteen).
Armbruster reacted to the jury's decision by invoking Federal Rule of Criminal Procedure 29(c), arguing that the trial evidence was insufficient, and asking the district court to enter a judgment as a matter of law in his favor on all counts of conviction and to set aside the adverse verdicts. He contended that the government did no more than prove corporate accounting mistakes, not deliberate fraud on his part. The district court denied the motion, reasoning that the government had presented enough evidence for the jury to reach contrary conclusions.
Armbruster's appeal is limited. He challenges only the district court's denial of his post-verdict motion under Rule 29(c) contesting the sufficiency of the government's evidence on each count of conviction. But he faces "a nearly insurmountable hurdle" succeeding with this challenge, for "we defer heavily to the jury's findings and review evidence in the light most favorable to the government" and will "reverse only where no rational trier of fact could have found the defendant guilty." United States v. Johnson , 874 F.3d 990, 998 (7th Cir. 2017) (cleaned up).
Counts Six and Seven of the operative indictment charged Armbruster with making false entries in the books, records, and accounts of a public company—Roadrunner. The district court instructed the jury that to sustain a conviction on these two counts, the government had to prove the following four elements beyond a reasonable doubt: that (1) Roadrunner was required to file reports with the SEC and to keep accurate books and records, including as to the financial affairs of Morgan Southern, a consolidated subsidiary; (2) Armbruster falsified or directed someone to falsify the account balances in question, namely the IKEA Maersk receivable (Count Six) and the prepaid taxes account (Count Seven); (3) those accounts were required to accurately and fairly reflect Roadrunner's financial state; and (4) Armbruster acted knowingly and willfully in falsifying the two accounts in question. See 15 U.S.C. §§ 78m(b)(2), (5), id. § 78ff(a), 18 U.S.C. § 2.
The government's evidence came on many fronts. First, the jury heard from several witnesses, ranging from analysts who reported to Armbruster to executives who were his peers, regarding his awareness of the Morgan Southern balance sheet problems. These witnesses explained that, as early as 2014, Armbruster had the information he needed to know that the accounts in question were materially overstated and needed to be written down, by establishing a reserve or recording a write off—either way resulting in Morgan Southern (and, by...
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