CHATTANOOGA, Tenn. (CN) – Four years after FBI agents burst into the Knoxville, Tennessee, headquarters of the truck stop giant run by the powerful Haslam family, the criminal trial begins Monday for former Pilot Flying J employees accused of defrauding trucking companies through a fuel-rebate scheme.
In 2014, Pilot admitted corporate responsibility for promising a series of rebates to trucking companies that bought fuel at its truck stops but then mailing checks with smaller discounts.
It signed a criminal enforcement deal and agreed to repay the trucking companies it duped, and also agreed to pay a $92 million fine to the U.S. government.
The company’s CEO, Jimmy Haslam, owns the National Football League’s Cleveland Browns and his brother, Bill Haslam, is the Republican governor of Tennessee who used to serve as Pilot’s president. Both brothers are billionaires, due in large part to the success of the truck stop chain.
According to prosecutors, 10 Pilot employees pleaded guilty to fraud charges in 2014.
In an indictment filed in February 2016, the government charged eight more former Pilot employees, but four pleaded guilty last month.
Now, only four remain. The two executives and two sales representatives pleaded not guilty to charges of wire fraud and conspiracy to commit mail fraud and wire fraud.
When Courthouse News reached out to the defendants’ lawyers, they declined to comment because U.S. District Judge Curtis Collier instructed them not to speak to reporters.
The remaining defendants include Heather Jones and Karen Mann, who worked as regional account representatives at the company’s Knoxville headquarters, and two former Pilot executives.
Mark Hazelwood, Pilot’s former vice president of sales and development, rose to the rank of company president in 2012.
In addition to the fraud and conspiracy charges, the indictment lists one count of witness tampering against Hazelwood based on prosecutors’ claim that he called his administrative assistant and falsely told her that he never read the trip reports he asked for.
Scott Wombold served as vice president of Pilot’s direct sales division from 2010 to April 2013. Besides the conspiracy and fraud allegations, prosecutors accuse him of three counts of making false statements during an interview with FBI and IRS agents when they searched Pilot’s headquarters.
The scheme siphoned $56 million from trucking companies from 2008 to 2013, federal prosecutors claim.
In order to attract trucking companies to stop at its locations, Pilot sold fuel to trucking companies at the cost the truck stop chain paid for it, plus a pump fee, usually a few cents a gallon.
For companies that burn through hundreds of thousands of gallons of fuel a week, a few cents represented significant savings. As the training manual created for Pilot’s direct sales division noted, “Fuel is a trucking company’s largest variable cost.”
But according to prosecutors, some employees in the direct sales division identified trucking companies that were not closely tracking the amount of fuel they consumed, the price of the fuel and the receipts they received.
Pilot would invoice some trucking companies for the fuel they used, lowering the discounts they received. For others, Pilot calculated the rebate “manually” after the companies purchased the fuel and mailed out checks, the indictment states, prosecutors say.
Next week’s trial was moved from Knoxville to Chattanooga due to heavy publicity of the case in Knoxville. The trial is expected to last four to six weeks.
Dotting the interstates, Pilot’s truck stops serve as a place for truckers to fill their rigs with dozens of gallons of fuel, grab a quick bite to eat and take a shower to wash away the miles of road.
Pilot is one of the biggest companies in its industry. It has 750 locations and is listed by Forbes as the 15th largest private company in the United States.
The indictment states that by lowering the amount of the rebates, Pilot’s direct sales division as a whole received higher commissions, from the head of the division to the people serving in supporting roles.
Part of the sales division’s goal was to increase Pilot’s share in the truck stop industry, and one of the best ways to do that was to offer discounts, according to the indictment.
Meanwhile, on Oct. 3, Pilot Flying J announced Berkshire Hathaway, headed by billionaire investment magnate Warren Buffett, will acquire 38.6 percent minority ownership of Pilot.
Berkshire Hathaway said it would acquire an additional 40 percent of the company from the Haslam family in six years, becoming the majority stakeholder of Pilot.
“Jimmy Haslam and his team have created an industry leader and a key enabler of the nation’s economy,” Buffett said in a statement announcing the deal. “The company has a smart growth strategy in place and we look forward to a partnership that supports the trucking industry for years to come.”
When asked how the FBI and IRS investigation into Pilot affected the investment by Berkshire Hathaway, a spokeswoman for Pilot denied a connection.
“The investigation and the investment are completely unrelated,” she said.
After Pilot entered into the criminal enforcement agreement with the government, the truck stop giant said it “continued to cooperate with the investigation; and made policy, procedure and staff changes to ensure this does not happen again. It is Pilot Flying J’s commitment to be a great partner to trucking companies across North America.”
Trucking companies filed civil lawsuits against Pilot when they learned of the rebate scheme. Several entered into a class action in Arkansas.
In November 2013, Moore Freight Service filed a lawsuit in Knox County against Pilot.
For years, the Tennessee company that specializes in transporting flat glass had received rebate checks from the truck stop chain. As a result of paying substantially more for fuel, the company said it took on additional debt.
“Beginning in May 2011, the Federal Bureau of Investigation entered into an agreement with confidential sources to obtain information about Pilot’s rebate fraud scheme, including Moore,” the company’s lawsuit states. “Over the course of the investigation, it was determined that Pilot employees…had been intentionally defrauding some of its customers by deliberately charging a higher price than the contractually agreed upon price, and then concealing the fact and nature of this increased price from victimized customers.”
One informant worked as a sales representative for Pilot, according to Moore Freight’s complaint, and FBI informants secretly recorded conversations and sales seminars.
In an email sent to Courthouse News, Grant Mize, vice president of operations for Moore Freight Service, said the company eventually settled out of court with Pilot.
“This was an eye opening experience for our small family owned company and forced us to upgrade our software systems to monitor fuel purchases and the daily price per gallon,” he wrote.
For awhile, Moore Freight tried to reduce the amount of fuel its truckers bought from the truck stop company, but it was difficult because Pilot stops span the country.
Eventually, though, Pilot worked to win back the trust of trucking companies like Moore.
“Over the last three or so years,” Mize wrote, “Pilot has put some good honest people in place to try and earn back the respect of companies that were impacted by the fraud. Moore Freight current buys half of all our fuel from Pilot and we continue to grow a positive relationship.”
But while truckers continue to pull into Pilot stops around the nation, pausing from riding the grey band of the interstate, and as Pilot makes plans to evolve and grow, the story of four former employees is just beginning to be told in a courtroom in downtown Chattanooga.