KNOXVILLE, Tenn. -- On April 15, agents of the FBI and the IRS in bulletproof vests executed search warrants at "Pilot Park," Pilot Flying J's headquarters, and seized binders, handwritten notes, emails and computer files. Three days later, a federal judge unsealed a 120-page affidavit, which alleged probable cause to believe there was a scheme by Pilot sales staff to defraud trucking-company customers that buy diesel at its truckstops by shorting rebate money Pilot owed them.
The scandal has shaken a company that fuels the nation's trucking industry, and it has put the spotlight on a hard-charging family that says it borrows tactics from the football field to excel in the tough business of peddling diesel, according to an in-depth look at Pilot Flying J and the Haslam family by The Wall Street Journal.
Pilot offered its trucking customers volume-based discounts as an incentive to buy more fuel from Pilot instead of competitors. The discounts vary daily by truckstop and state and are complicated by fluctuating daily fuel costs. Most customer discounts are awarded at the pump; some are awarded in the form of a rebate paid to the customers.
The FBI affidavit, filed in U.S. District Court in Knoxville, alleges that Pilot's sales staff, stretching back to 2008 and in some cases earlier, systematically shorted customers on these rebates to boost Pilot profits and sales commissions.
Sales staff called the scheme various names, including "cost-plussing," "trimming," "screwing" and crasser terms, according to the affidavit. One of the FBI sources allegedly recorded high-level Pilot executives in sales training meetings discussing strategies to confuse trucking customers and shortchange them tens of thousands of dollars--up to a million dollars in one case.
A confidential informant told the FBI that CEO Jimmy Haslam knew about the scheme, according to the affidavit. Investigators appear to be pressing for indictments, maybe even his, he acknowledged. Haslam won't discuss the particulars of the April FBI raid. He says he hasn't done anything wrong, and he is "very comfortable" with his personal position.
"I really can't worry about indictments because I have no control," he told the Journal. "My focus has got to be on fixing the problem with the companies [that are Pilot's customers], making it right if we owe them something. I got to focus on what I can control."
Lawyers and Pilot's trucking customers have filed 15 lawsuits against Pilot. Five Pilot sales employees have reached plea agreements with federal prosecutors. Both the company and its board are conducting separate investigations.
"Our legal counsel has advised us not to be surprised by class-action lawsuits, and we've expected them and we'll defend them appropriately," company spokesperson Tom Ingram told the newspaper. Ingram said the plea agreements were "very disappointing."
Haslam has vowed to repay any money owed customers plus interest. He has put some sales staff on administrative leave and while he doesn't presume them guilty, he has said publicly he thinks they were guilty "of violating how Pilot Flying J team members are supposed to act."
Haslam said any problems with Pilot's rebates and discounts might be the byproduct of rapid growth, not the result of profit pressures on Pilot employees. "Now, are we demanding? Yes. This is a very accountable organization with high goals," he says, "but never is it ever, ever suggested that anybody should do anything wrong in accomplishing those goals."
Click here to view the full Wall Street Journal report.
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