CHATTANOOGA, Tenn. (CN) – Around the time a fuel rebate scheme began at Pilot Flying J, jurors heard Monday that a regional sales director emailed the company’s billionaire CEO Jimmy Haslam about why a trucking company wasn’t buying more fuel, just before the company realized it was being duped.
The account that advanced through defense attorney Jonathan Cooper’s cross-examination of former Pilot regional sales director Arnie Ralenkotter as he sat on the witness stand Monday sheds light on the leadership at the truck stop giant nine years ago.
Four former Pilot employees stand trial in a federal courtroom in Chattanooga, Tenn., for allegedly conspiring to reduce the rebates trucking companies received for buying Pilot’s fuel.
Ralenkotter pleaded guilty to conspiring to commit fraud May 2013, a month after federal investigators raided Pilot’s headquarters in Knoxville, Tenn., searching for evidence about a rebate scheme prosecutors say ran from 2008 to 2013.
Prosecutors point to the case of Smith Transportation, a Pennsylvania company, as an example of the fraud.
They say Ralenkotter – who worked remotely in Kentucky – directed a member of Pilot’s sales team on July 1, 2008, to charge the company four cents more per gallon of fuel to “see if he notices.”
That same month, Pilot salesmen struggled to get Smith Transportation to commit to buying more of Pilot’s fuel. While it bought more than a million gallons of fuel a month for its fleet, it would buy anywhere between 450,000 to 920,000 gallons from Pilot.
The trucking company used software that told it where the most cost effective diesel sat along its driver’s routes. Pilot’s salespeople got the sense that Smith wasn’t interested in committing to one fuel provider, according to prosecutors.
After Ralenkotter forwarded that explanation for why Smith wasn’t buying more fuel from Pilot to CEO Jimmy Haslam, who also owns the National Football League’s Cleveland Browns, Haslam wrote back: “Thanks for the update on Smith—disappointing.”
By 2008, Haslam’s company collected annual revenues of $7 billion. By the end of that year, the company sold 3 billion gallons of fuel.
The email went out before Haslam purchased the Brown in 2012, and even before Pilot Travel Centers merged with Flying J to create Pilot Flying J in 2010.
Haslam has denied any knowledge of the rebate scheme and has not been charged.
The way Ralenkotter explained it on the witness stand Monday, Pilot Travel Centers pressured its sales team to close deals and rake in profits from the gallons of diesel fuel trucking companies bought from it in the middle of 2008.
And as his position as regional sales director, it was Ralenkotter’s job to set the standards.
In September that year, Ralenkotter emailed his team saying by the beginning of 2009, he would not approve any vacation time longer than a week for any salesperson who did not hit their weekly quotas.
In another email in September, Ralenkotter reminded his team of what Haslam said in an update he recently delivered. Ralenkotter wrote, “Work hard, work smart, find creative ways to get gallons.”
Meanwhile, jurors in the trial learned Monday that Smith Transportation caught the discrepancy in what it was promised and what it received three months later when they were about to be bought out by U.S. Xpress, a much larger trucking company.
Pilot issued a check to make up the difference.
Through the emails and cross-examination of Ralenkotter, defense attorney Cooper tried to paint his client – former inside sales representative Karen Mann – as someone who was just following orders in the fuel rebate scheme.
The exchange happened at the beginning of week two of a trial expected to run six weeks in the federal courthouse that sits in downtown Chattanooga.
A year after the raid at its Knoxville headquarters, Pilot signed a criminal enforcement agreement with the federal government, taking responsibility for the fraud, promising to repay the $56 million the government says it swindled from trucking companies, and also paying a $92 million fine.
From one month after the raid in 2013 to a few months before this year’s trial, the government charged 18 of Pilot’s employees. Fourteen pleaded guilty and only four pleaded not guilty.
Of those four, two inside sales representatives, Mann and Heather Jones, stand trial for wire fraud charges.
Their two co-defendants were more senior in Pilot’s hierarchy. Scott Wombold is accused of conspiracy, mail fraud and making false statements to federal agents when they raided Pilots headquarters on April 15, 2013. Working his way up from pumping gas in a small Ohio town, he is the former vice president of Pilot’s direct sales division.
Mark Hazelwood began his career washing dishes at a truck stop and diner. When the raid happened, he had spent about a year and a half as Pilot’s president. Besides conspiracy and fraud charges, he also faces one count of witness tampering.
U.S. District Judge Curtis Collier presides over the trial being heard by a panel of 15 jurors.
On Monday morning, Collier dismissed one juror because she had two trips scheduled before she was called up for jury duty.
Testimony will continue this week.