'A Tough Week' for Pilot Flying J

Will rectify rebate errors, automate process, hire compliance officer, investigator, says Haslam

KNOXVILLE, Tenn. -- In the wake of a federal investigation and the firstof what could be more lawsuits, Pilot Flying J CEO Jimmy Haslam issued a statement at a press conference on Monday at the truckstop company's Knoxville, Tenn., headquarters, a week after the FBI, IRS and other law enforcement raided the office over what has emerged as an investigation into unpaid or underpaid diesel fuel rebates to trucking company customers. He outlined several steps the company will take to correct the alleged abuses and prevent such abuses from happening again.

Haslam on Friday denied any wrongdoing and said he was not stepping aside, the Associated Press reported. In a separate statement, he said, "The affidavits didn't present a very flattering picture of our company, and were not representative of what our company is all about."

He added, "On a personal note, this obviously has been a tough week for the Pilot Flying J family, the toughest in our history" (see File Attachments below for the complete statement).

Georgia trucking company Atlantic Coast Carriers Inc., Hazlehurst, Ga., filed a lawsuit April 20 against Pilot Flying J in Knox County Circuit Court in Knoxville, reported The Knoxville News Sentinel.

It is seeking class-action status, the report said.

The FBI's investigation began in May 2011, according to the newspaper.

The lawsuit said confidential FBI informants revealed that Pilot maintained spreadsheets showing the amount owed to customers under their rebate agreements versus the amount actually paid. These informants also allege that at company sales seminars, sales representatives were told to commit rebate fraud by sending their customers less than they were owed and training sales representatives on how to determine which customer would have difficulty discovering the price discrepancies, said the report.

Transcripts released by the government highlight conversations in which company executives apparently discussed strategies for deceiving trucking customers that buy diesel fuel from Pilot, the report said. Many of the conversations are laced with profanity and reveal alleged efforts to secretly avoid providing fuel rebates that the company had previously agreed to pay.

Click here to read the full Knoxville News Sentinel report. And click here to read a Forbes report with details of the transcripts.

"We are continuing to cooperate appropriately with investigators, but we are determined to understand on our own the questions they are asking and to do everything we can to make sure we are never in this position again," Haslam said on Monday. As reported in a Raymond James/CSP Daily News Flash, he announced five steps that the company is taking to address the issues raised by the investigation:

1. "Immediately, we are bringing our field audit team to Knoxville to review all 3,300 contracts with our trucking company customers, not just the relative few implied in the federal affidavit, and to proactively address any miscalculations that we may find.

"Our goal is to understand the entirety of that part of our business, not just the manually processed contracts. If we find an underpayment, we will encourage the affected customer to review our finding, test with their own audit if they like, and if we owe them money, we will write them a check immediately."

2. "We placed on administrative leave several members of our diesel fuel sales team and, on an interim basis, we are restructuring that team pending further investigation to get control of that operation and restore confidence to our customers. ...

"We are not judging the guilt or innocence of the team members placed on administrative leave. "We are addressing actions and words that fail to show proper respect to our customers and that violate the character, values and principles that have been core to this company since it was founded 54 years ago.

"As a private company, we have dealt with these members privately and will not release their names publicly."

3. "I have directed that all of our diesel fuel customers be converted to electronic calculation and payment eliminating future risks of any abuse that might be enabled by manual calculation and payment.

"This process will fully eliminate manual processing at Pilot Flying J and place all of our customers on electronic direct bill. I expect this process to be completed by June 30."

4. "I have asked our outside counsel to help us create and staff a position of Chief Compliance Officer to report to the company's general counsel to deal with any similar questions or issues that might come up in the future. ...

"I expect this person to be on the job within 30 days."

5. "Our board, in a special meeting ... voted to hire an Independent Special Investigator to oversee and validate all of our internal inquiries related to the federal investigation. ...

"We will find the best person in America to come into this situation and oversee and make certain that any and all of our own investigations into these matters are thorough and correct and help us ensure that what happened to this company last week never happens again.

"I expect this person to be on the job within 30 days."

(See File Attachments below for the complete statement.)

Pilot Flying J has more than 650 retail locations and is the largest operator of travel centers and travel plazas in North America. Its network provides customers with access to more than 60,000 parking spaces for trucks, more than 4,400 showers and more than 4,000 diesel lanes, of which more than 2,800 offer diesel exhaust fluid (DEF) at the pump. Pilot Logistics Services is one of the largest independent energy logistics companies in North America, selling and distributing more than 1.3 billion gallons of refined petroleum products and serving more than 15,000 customers. Together, Pilot Flying J and Pilot Logistics Services generate sales of approximately nine billion gallons of petroleum annually.