By Patric Hedlund
We’ve all seen the drill in Hollywood movies and in too many newscasts in recent years: computers and boxes of files are carried out of corporate headquarters by men and women wearing jackets that have ‘FBI’ emblazoned across the back. This scene occurred at the Knoxville, Tennessee headquarters of Pilot Flying J last Thursday. It was a raid conducted by the Federal Bureau of Investigation and the Internal Revenue Service.
According to an affidavit filed by the FBI with the federal court in Knoxville, the FBI investigation centers on rebates Pilot Flying J offers trucking companies for buying large quantities of diesel fuel—the more fuel purchased, the bigger the rebate.
According to the affidavit obtained by The Mountain Enterprise on Wednesday, April 24, Pilot Flying J is alleged to have intentionally reduced the rebates to at least half a dozen “unsophisticated” companies.
The Flying J in Lebec, a well-known Grapevine watering hole and stopover for truckers, was part of a large merger agreement in July 2009 after Flying J was suddenly caught in a cash flow crisis when banks cut off corporate lines of credit, even to large companies.
Flying J quickly filed for Chapter 11 bankruptcy protection. In a long process, many of its assets (including the facility in Lebec) were transferred to Pilot. The merged Pilot Flying J company is the largest truck stop travel center in North America, with over 500 retail locations and “is ranked by Forbes as the sixth largest private company in America,” a company website says.
The company is an important local employer in the Mountain Communities, although most of the jobs are hourly with modest wages.
The affidavit shows investigators believe they have evidence proving “a conspiracy and scheme to defraud executed by various Pilot employees to deceptively withhold diesel fuel price rebates and discounts from Pilot customers without the knowledge or approval of the customer, for the dual purposes of increasing the profitability of Pilot and increasing the diesel sales commissions of the Pilot employees participating in the fraud….”
Complaints were received by the FBI alleging that promised discounts for bulk purchase of diesel were not provided as the company promised.
Questions about the internal corporate culture of the Pilot company arose last fall when a story by The Mountain Enterprise quoted the chief financial officer saying they were losing $400,000 a month to credit card and debit card fraud in California alone. The CFO told us that security measures to safeguard against fraud at exterior retail gas payment tanks were against California law. That had not been true for over two years.
Troubling questions arose, although we did not publish them at the time, about whether the CFO had been given outdated legal advice or whether this could point to possible fraud occurring internally. A public relations company sprang into action as national trucking magazines and websites picked up the reporting by The Mountain Enterprise and made it a national story.
This week we called the Pilot Flying J corporate office and were referred to the public relations firm. They did not return voice mail requests for a call back to speak about the FBI / IRS moves last week.
CEO Haslam told reporters in Knoxville that he would continue as leader of the company through the investigation.
According to the affidavit, Haslam allegedly knew about the scheme within the company that his father founded 55 years ago.
The alleged fraud was brought to the FBI’s attention by an informant on May 4, 2011. Allegedly the fraud targeted trucking companies deemed ‘too unsophisticated’ to figure out what was happening, according to the affidavit. Director of National Sales Brian Mosher allegedly would reduce rebates without telling customers and blame a computer glitch if the reduction was discovered.
One company, Morehouse Truckline, allegedly discovered in June of 2012 it had been shorted $146,564.55 in rebates over seven years while purchasing more than 4 million gallons of diesel fuel.
Former Pilot sales manager Cathy Giesick recalled a meeting three or four years ago in which Haslam ‘thanked Mosher for saving Pilot money,’ according to the affidavit.
In the press conference after the raid last week, CEO Haslam is quoted as saying that he has “been inundated with texts, emails and calls” from trucking companies that would welcome FBI audits of their rebates. He said that “this company was built on integrity” and that continues to this day.
–Gary Meyer provided additional research
This is part of the April 26, 2013 online edition of The Mountain Enterprise.
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