The bankruptcy of trucking giant Celadon left nearly 4,000 jobless. The short-seller who said it would hit zero more than 2 years ago told us what tipped him off.

• $67 million hedge fund Prescience Point predicted in April 2017 that trucking giant Celadon was going to zero.
• Some 2-1/2 years later, the short-seller's call turned out to be prescient. The Indianapolis-based company told its 3,800 employees on Monday it was shuttering.
• Eiad Asbahi, the founder of the Louisiana-based fund, told Business Insider that a number of things signaled possible issues at Celadon, including its accounting practices, nepotism among hires at the executive level, and the use of a regional firm for its auditor.
• Click here for more BI Prime stories.

The biggest bankruptcy in truckload history was unsurprising to a small Louisiana-based hedge fund.

Celadon Group filed for Chapter 11 bankruptcy on Monday and plans to shutter the company entirely, the firm's CEO said in a statement. That comes roughly 2-1/2 years after Eiad Asbahi's Prescience Point Capital Management predicted the firm's stock price would fall to zero.

Late last week, the US Securities and Exchange Commission charged two former Celadon executives with accounting fraud: former president and chief operating officer William Eric Meek, and former chief financial officer Bobby Peavler.

While Asbahi original prediction that the firm would go to zero in a quarter or two did not materialize that quickly, his call of an eventual bankruptcy was still prescient. He told Business Insider that there were multiple red flags that led to his firm taking a short position against the trucking firm, which grossed $1 billion a year as recently as 2015.

Celadon could not be reached for a comment. The company's attorney did not immediately respond to a phone and email inquiry.

Read more: Thousands of truck drivers have lost their jobs this year in the trucking 'bloodbath.' Here's what's behind the slowdown in the $800 billion industry.

"Some of the most prominent," according to Asbahi, included: "numerous, severe accounting discrepancies"; transactions between the company and an off-balance sheet entity called 19th Capital; the selection of a regional auditor, BKD; and several hires of vice presidents and managers who were all in the same fraternity at Franklin College.

'Actually worthless'

Asbahi told Business Insider that while initially sniffing out opportunities in the transportation sector, his interest in Celadon piqued after industry insiders pointed to unusual happenings the crossborder trucking company. That "prompted us to start digging into the company's financial statements," Asbahi told Business Insider.

What caught Asbahi's attention initially were transactions between Celadon and an off-balance sheet entity called 19th Capital, according to his 2017 report.

Celadon's leadership disclosed in a 2016 earnings report that it would form a new off-balance sheet entity allowing the retirement of an asset financing group called 19th Capital. The company valued the entity at more than $27 million, or 4.5 times times its initial investment from just over a year ago.

Asbahi speculated the entity, based on truck valuations, was "actually worthless." Nevertheless, the retirement triggered a management payday of around $4.6 million.

That 19th Capital discovery was part of a larger scheme that the SEC centered much of its case on. Peavler and Meek, the two former C-suiters charged by the SEC, allegedly inflated the values of trucks the company bought and sold to bolster its net income and earnings per share. These truck prices were valued at double or triple fair market value, the SEC wrote.

The scheme allegedly cost shareholders more than $60 million.

'Nepotism and a lack of accountability are rampant'

Asbahi was an outsider to trucking - and unfamiliar with the industry's characteristics.

The $800 billion industry's largest companies are often helmed by the children of the founders or have descendants dominating the boards. Those in the trucking often view "family-owned" fleets as a positive, rather than a red flag for favoritism.

Instead, Asbahi highlighted that was a potential downfall of Celadon. A former employee featured in his 2017 report said Celadon leadership "fostered a toxic work culture where nepotism and a lack of accountability are rampant," Asbahi wrote.

After the death of founder Steve Russell, the top management became dominated by men who had graduated in the mid-2000s from Franklin College, a liberal arts college 20 miles south of Indianapolis with just over 1,000 students. Many of these men were former fraternity brothers, according to the former employee.

Family members were in key positions, including the founder's son as president of logistics and the former CEO's 29-year-old nephew running the international business.

Read more: Bankrupt trucker Celadon told laid-off employees that they've lost health insurance and won't receive unused-vacation-time pay - read the full letter here

Because of these collegiate or blood relations, the former employee told Asbahi that there were no consequences for poor work performance. "You have a very incestuous organization that is unlike any other public company that I've ever seen," the former employee said in the report.

The aftermath

Asbahi followed his initial 35-page report, in which he called the trucking company "a house of cards on the brink of collapse," with two more in 2017.

The New York Stock Exchange delisted Celadon in April 2017 after the trucking giant said it would need to amend reports dating back to mid-2014. Most of the banks covering Celadon dropped their coverage; the company has not filed a quarterly report since before the short-seller report.

In lieu of a typical earnings call, former CEO Paul Will hosted a conference call in May 2017. He announced a new COO and president, intentions to file a 10-Q in several weeks, and a plan to overhaul the auditing process.

These new hires were "both substantive and symbolic of re‐focusing our company on core trucking operations," Will said. "We took these actions because the trucking business is a main driver of cash generating opportunity and it was underperforming our standards."

In June 2017, Will stepped down. CFO Peavler left the following year. Celadon's stock began a free fall from around $9 per share in 2017 to the low single-digits in 2018 to pennies this month.

Not once did Celadon or its new leadership get in touch with the Baton Rouge-based financier, he said.

"We did not have any interaction with the company either before or after the report," Asbahi said in the email. "Given our confidence in our thesis and the severity of the fraud being perpetrated, we felt that contacting management would be a fruitless exercise. Celadon executives made zero attempts to contact or meet with us after the report was published."

Are you a former Celadon employee? Email the reporter at rpremack@businessinsider.com.

Learn more about why truck drivers are saying their industry is in a "bloodbath" - and what key executives think need to change

A truckload giant just filed for bankruptcy, and it leaves nearly 3,000 truck drivers jobless

America's largest truck-engine manufacturer just announced 2,000 layoffs - and it's another sign of the trucking 'bloodbath' that's slamming the $800 billion industry

'Bad from every angle': America's trucking recession is now slamming one of the $800 billion industry's largest companies

We asked C.H. Robinson's new CEO everything about the brokerage giant's strategy for the years ahead - from tech recruiting in Minnesota to the trucker shortage to the trucking recession. Here's the full interview.