FBI documents reveal that Jimmy Haslam’s travel center firm, Pilot Flying J, has been involved in a fraudulent scheme that bilked customers out of millions of dollars. Haslam owns the NFL’s Cleveland Browns.
According to court documents just filed in federal court, Pilot Flying J engaged in the fraud for “many years” by keeping millions due customers in gas rebates, said Cleveland.com. The documents say that Haslam was aware of the fraud being committed by top sales officials at his family business and that employees stole from “unsophisticated” trucking companies through a rebate program. The FBI explained that under the rebate program, trucking firms that met specific minimum purchase requirements were promised rebates; however, rebates were reduced for certain customers, USA Today wrote.
Pilot Flying J staff withheld gas price rebates and discounts from specific companies for the purpose of increasing company profitability and sales commissions, Cleveland.com explained. The affidavit for a search warrant that was filed in U.S. District Court in Knoxville, Tennessee, says IRS and FBI agents are looking into charges of conspiracy and mail and wire fraud. According to the document, “the rebate fraud has occurred with the knowledge of Pilot’s current President Mark Hazelwood and Pilot’s Chief Executive Officer James A. “Jimmy” Haslam III, due to the fact that the rebate fraud-related activities have been discussed during sales meetings in Knoxville, Tenn., in which Hazelwood and Haslam have been present,” according to Cleveland.com.
Haslam, brother of Bill Haslam, governor of Tennessee, announced changes to the company including that several sales staff have been placed on administrative leave, internal auditors have been ordered to review the firm’s direct billing processes with every Pilot trucking client, and manual processing would be ceased, said USA Today. Haslam also said a new chief compliance officer position would be created and that the special investigator, who will report to Pilot’s board of directors would have a “Justice Department background and credibility beyond reproach” to lead Pilot’s internal review, wrote USA Today.
The multi-billion dollar truck stop firm—considered the largest truck stop operator in the country—has 3,300 trucking clients, more than 650 locations, and 23,000 employees, said USA Today. Last year, pilot reported $29.2 billion in sales and Forbes magazine ranked Pilot as the sixth largest privately held company in the United States.
Pilot’s regional sales manager told a confidential informant that his part in the fraudulent rebate scheme cost customers $70,000-$90,000 monthly, according to the affidavit, said Cleveland.com. Several employees were involved, the affidavit noted. The document, authored by an FBI agent who specializes in public corruption and white-collar crime, indicated that the investigation was initiated on May 4, 2011 and was prompted when a source told the FBI that Pilot employees were bilking some companies who Pilot considered to be “too unsophisticated to catch that their agreed-upon deal” was changed to “benefit Pilot without the knowledge of those customers,” according to Cleveland.com.
The scheme took place over at least seven years and one company lost about $150,000, the affidavit says. Western Express audited its bill and discovered it had been shorted $1 million; Pilot estimated the total Western Express fraud at $5 million, said Cleveland.com. The two firms carved out an unusual settlement in which Pilot purchased a Western plane on which Western owed $1 million. “So, I bought the (expletive) airplane,” said John Freeman, Pilot J’s vice president for sales, told colleagues in a conversation covertly recorded by the FBI informant. “It was so broke that the (expletive) wasn’t airworthy. So we had to sell it in Nashville.”
Also according to the affidavit, Brian Mosher, director of sales for national accounts, spoke with employees during a sales meeting in November that was recorded by a cooperating witness for the FBI. Mosher talked about how to handle unsophisticated firms saying, said Cleveland.com, “Some of ‘em, some of ‘em don’t know what a spreadsheet is. I’m not kiddin’. So, again, my point is this: Know your customer. If the guy’s sophisticated and he truly has gone out and gotten deals from other competitors and he’s getting daily prices from us, don’t jack his discounts, ‘cause he’s gonna know, okay?” The document said that in cases in which a customer was due a $10,000 rebate, Mosher would slash the rebate to $7,500.
An informant said Mosher cut the customer rebates “because it made more money for Pilot, and it increased the commission that Mosher and any other Pilot sales person responsible for the customer would receive,” according to Cleveland.com.