FBI: Pilot worker sheds light on case

A Pilot Flying J employee told investigators that CEO Jimmy
Haslam, who is also the owner of the Cleveland Browns, knew about
rebate fraud at the truck stop chain his family owns, according to
an FBI affidavit unsealed Thursday.

The 120-page document filed federal court in Knoxville, where
Pilot is based, alleges that members of the company’s sales force
preyed on smaller trucking companies by reducing the amount of
rebates they were owed for buying certain amounts of fuel.

Special Agent Robert H. Root alleged a ”conspiracy and scheme
to defraud executed by various Pilot employees to deceptively
withhold diesel fuel price rebates and discounts from Pilot
customers … for the dual purposes of increasing the profitability
of Pilot and increasing the diesel sales commissions of the Pilot
employees participating in the fraud.”

The affidavit was filed to secure the search warrants used in
Monday’s raid on the Pilot Flying J headquarters.

One employee identified only as a confidential source told
investigators that the rebate scheme was discussed during sales
meetings attended by Haslam and Pilot President Mark Hazelwood.

The informant said the practice was known by a variety of
euphemisms ranging from ”manual rebates” to ”screwing.”

Haslam denied wrongdoing in a news conference earlier this week.
He said in a statement Thursday that ”the foundation of this
company is built on its integrity and that any willful wrongdoing
by any employee of this company at any time is intolerable.”

He said the company would continue to cooperate with authorities
and conduct its own investigation.

Informants secretly recorded conversations among Pilot employees
holding frank -and often profane – discussions about the rebate
scheme, and agents interviewed current and former members of the
sales team.

The investigation began after agents were contacted in May 2011
by a confidential informant who said they had been told about the
scheme by a Pilot Flying J employee. The investigation continued
through this month. Jimmy Haslam bought the Cleveland Browns in a
$1 billion deal last summer.

Haslam was in Cleveland on Thursday to help prepare for next
week’s NFL draft. League spokesman Greg Aiello declined to weigh in
on whether the investigation would affect Haslam’s role as team
owner.

”We must respect the process of a federal investigation and
decline comment,” Aiello wrote in an email.

Pilot Flying J, a privately held company with annual revenues of
$29 billion, is the nation’s No. 1 retailer of diesel fuel. It is
mostly owned by Haslam; his brother, Tennessee Gov. Bill Haslam;
their father and company founder Jim Haslam; and other family
members.

When Pilot bought its nearest competitor Flying J out of
bankruptcy in 2009, federal trade officials worried the combined
entity owned by the powerful Haslam family could corner the market
on diesel fuel.

To alleviate ”competitive concerns,” the Federal Trade
Commission in 2010 required Pilot to sell some truck stops to a
competitor, Love’s, and share its fuel purchase technology before
it could merge.

When asked earlier this week whether the probe was related to
the FTC’s previous concerns about unfair competition, Haslam
replied: ”We would not think so.” An FTC spokesman declined to
comment.

According to the IRS, it is common for fuel stops to hand out
monthly rebates on purchased fuel. Rebates should be reported as
income, as a reduction of expense, or as a reduction to the cost of
the new asset.

Not all customers doing business with Pilot are on the rebate
program.

Pat Marsh, chairman of Shelbyville, Tenn.-based Big G Express,
said his trucking company had a rebate program set up when it was a
client with Flying J. Since the Pilot takeover, that system has
been replaced with pre-negotiated prices paid at the pump with
swipe cards. It tracks the mileage on trucks, the identity of the
driver and the amount of fuel purchased

”The more we buy, the cheaper the price is,” said Marsh, who
is also a Republican state representative, said in an interview
before the affidavits were released. ”We negotiate our price
talking to the corporate people and the sales people and by how
many gallons we purchase.”

Marsh said he was surprised to see the Pilot Flying J
headquarters raided.

”We’ve had nothing but a great relationship with those guys,”
he said. ”They treat us fairly.”

Several trucking companies are named in the affidavit as having
not received their negotiated rebates from Pilot. None immediately
responded to messages from The Associated Press seeking
comment.

Sainz reported from Memphis.