Truckstop chain Pilot Flying J has struck a deal with federal prosecutors to avoid criminal prosecution over allegations it cheated fleets out of fuel rebates, but the agreement does not mean individuals are off the hook. In fact, the agreements calls for Pilot Flying J to help track down those responsible for the criminal conduct at the company.
Over the next two years the company will pay $92 million and will fully cooperate with the federal government’s investigation of fraudulent conduct within the company’s diesel fuel sales discount programs, including keeping the government advised of the status of its internal compliance program, which it voluntarily initiated last year.
The agreement between the U.S. Attorney’s office, Eastern District of Tennessee, and the U.S. Department of Justice, called a “Criminal Enforcement Agreement,” is “neither an indictment nor a finding of guilt,” according to a release from the company.
However, the U.S. Attorney’s Office said, “Pilot confirmed that fraudulent conduct involving diesel fuel price discounts was prevalent within its direct sales group and carried out with the knowledge and participation of employees responsible for the operation and oversight of direct sales.
“Pilot has accepted legal responsibility for the criminal conduct of its employees, which caused more than $56 million in loss to its customers, and agreed to pay full restitution to every victim of the fraud,” said the statement from the U.S. Attorney’s office.
The financial penalty is an amount within the fine range recommended by the U.S. Sentencing Guidelines.
The agreement also expressly states that it provides no protection from prosecution to any individual, and imposes a continuing obligation on Pilot to provide complete cooperation with the ongoing federal investigation of current and former Pilot employees relating to fraudulent conduct involving the sale of diesel fuel.
In the event Pilot Flying J breaches its obligations under the agreement, the truckstop chain has agreed that the United States may file the criminal information attached to the agreement, and will not contest the allegations.
Following a lengthy, joint investigation by the FBI and the IRS into allegations of fraudulent conduct at Pilot Flying J, on April 15, 2013, search warrants were executed at multiple locations, including Pilot’s headquarters in Knoxville.
Since that time, 10 of the truckstop chain's employees, including those with supervisory responsibilities, agreed to cooperate with the ongoing federal investigation and entered guilty pleas to mail and wire fraud charges arising from their involvement in the fraudulent reduction of diesel fuel price discounts owed to Pilot customers. So far none of these people has been sentenced.
“We, as a company, look forward to putting this whole unfortunate episode behind us, continuing our efforts to rectify the damage done, regaining our customers’ trust, and getting on with our business,” said CEO Jimmy Haslam. “We’ve been committed from the beginning of this to doing the right thing, and that remains our commitment.”
“The past 15 months, since the federal government served a search warrant on the company’s headquarters, have been very trying for all involved,” said Aubrey Harwell, Pilot Flying J’s attorney. “The company has cooperated fully with the government and will continue to do so.
“Under the terms of the agreement, the company has certain obligations, which it fully intends to fulfill,” he said. “We appreciate the diligence the U. S. Attorney’s office has shown in this matter. It certainly has been no less diligent than our own internal investigation. I believe this agreement is the result of the good intentions of both sides to do the right thing.”
According to the U.S. Attorney’s Office, Pilot Flying J confirmed that supervisory employees encouraged participation in discount fraud for the company’s benefit, including during a November 2012 annual sales training meeting at Pilot’s headquarters in Knoxville, “when a Pilot supervisor encouraged and taught direct sales employees how to deceptively reduce the rebates paid to some customers for the purpose of making targeted accounts more profitable for the company.”
Pilot also confirmed that the discount fraud was executed generally in one of two ways: either by fraudulently reducing the amount of monthly rebate amounts to targeted customers or by deceptively reducing the off-invoice discounts of targeted customers, according to the U.S. Attorney’s Office. Pilot acknowledged that its employees emailed spreadsheets among each other that documented their fraudulent reductions, and that in some cases, its employees fabricated “back up” documentation sent to customers to justify fraudulently reduced rebate or discount amounts.
Since the April 2013 raid, both Pilot Flying J and CEO Jimmy Haslam repeatedly denied any wrongdoing. The company did agree to a settlement, approved by a judge last November, of a federal class action lawsuit to settle claims by customers, costing the company around $85 million. Despite the settlement around a half-dozen cases still remain against the company by those who opted out.
Also, some Pilot Flying J employees have been fired or left on their own, including John Freeman, the vice president of national sales, and Mark Hazelwood, company president, while others have been placed on administrative leave.
Pilot Flying J reportedly does $30 billion in business annually and has more than 650 locations nationwide.