Pilot Flying J strikes deal: Haslam company to pay $92 million to avoid prosecution

Pilot Flying J strikes deal: Haslam company to pay $92 million to avoid prosecution

July 15th, 2014 by The Knoxville News Sentinel in Business Around the Region

Jimmy Haslam, president and CEO of Pilot Travel Centers, takes a phone call as he prepares to make a visit to the Flying J Travel center at Watt Road in Knoxville in 2010.

Jimmy Haslam, president and CEO of Pilot Travel...

Photo by The Knoxville News Sentinel /Times Free Press.

Pilot Flying J has reached a deal with federal prosecutors to avoid criminal charges against the company.

Under the deal made public on Monday, Pilot must pay a $92 million penalty over two years and cooperate with an ongoing criminal investigation into diesel fuel rebate fraud.

Federal prosecutors said in a news release that the criminal enforcement agreement "expressly states that it provides no protection from prosecution to any individual" in connection with the case.

"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," CEO Jimmy Haslam said in a company release.

"We've been committed from the beginning of this to doing the right thing, and that remains our commitment."

The government's investigation of alleged diesel fuel rebate fraud at Pilot became public last year. Since then, the company has reached an $85 million settlement in federal court with trucking customers who claimed in civil lawsuits that they had been shorted on diesel fuel rebates.

Under that settlement, Pilot agreed to repay any amounts owed, plus 6 percent interest and attorneys' fees.

A criminal investigation is ongoing, and 10 former employees have pleaded guilty to charges in connection with the case.

In the government's news release, U.S. Attorney Bill Killian said the "terms of this agreement, including the significant monetary penalty and the very serious consequences if Pilot fails to comply, demonstrate quite clearly that no corporation, no matter how big, influential, or wealthy, is above the law."

The agreement, which was signed on Friday by Pilot attorneys, states that the company will use its best efforts to make any present or former directors, officers or employees available for interviews or testimony, as requested by prosecutors. That includes identifying witnesses who may have material information.

The agreement also does not prevent the Internal Revenue Service from pursuing any civil collection actions.

The looming unanswered question is which Pilot employees or former employees - if any - still might be targeted for indictments. The most high-profile executive is Haslam, the owner of the NFL's Cleveland Browns, the son of the company's founder and the brother of Tennessee's governor.

Haslam has said he had no knowledge of fraud, and Tom Withers, a Savannah, Ga., defense attorney and former assistant U.S. attorney, said Monday that "it would strike me as unusual if the company were to resolve things and they didn't have some kind of an indication from the government that the government was not going to go after (Jimmy) Haslam. That would be unusual in my judgment."

On May 19, nine employees left Pilot, were terminated or were placed on administrative leave, including former President Mark Hazelwood and former Vice President of Sales John Freeman, who alleged in a conversation secretly recorded by the FBI that Haslam was aware of the company's fraudulent activity in at least one instance.

A source close to the company has said Hazelwood was given the opportunity to resign rather than be terminated. Freeman was terminated, and had previously been on administrative leave.

A statement of facts attached to the new enforcement agreement made reference to a plan by certain Pilot employees to establish different pricing tiers for different types of customers, Tier A and Tier B. That fraud, the statement said, was stopped before it could be implemented because Pilot's general counsel learned about it in March 2013, the month before a federal raid.

A government affidavit released in April 2013 included a transcript of a secretly recorded conversation in which Hazelwood allegedly nicknamed a two-tiered pricing structure "Aunt Bea", an apparent reference to the "A" and "B" pricing plans.

Gordon Ball, an attorney representing Hazelwood, declined comment on Monday.