(KNOXVILLE) A federal grand jury has indicted eight former and current Pilot Flying J employees - including the former president - for their alleged roles in a diesel fuel rebate scheme that authorities say helped line their own pockets and enrich the nation’s largest chain of truck stops and travel centers.
Indictments unsealed Tuesday come almost three years after dozens of FBI and Internal Revenue Service agents raided Pilot’s West Knoxville headquarters and several other nearby offices, seizing thousands of documents and copying computer hard drives.
Attorneys for those indicted were told Friday to expect charges.
READ: Indictment of 8 employees
Former president Mark Hazelwood, 57, was the first to appear Tuesday morning in U.S. District Court. He faces three counts of conspiracy to commit wire fraud and a witness tampering count.
Hazelwood was to be released and will be allowed to travel within East Tennessee. If he needs to travel nationally, he'll have to get clearance from a probation officer, authorities said in court.
Others who made appearances Tuesday on mail and wire fraud charges: Scott "Scooter" Wombold, 56, vice president of national accounts, and John ‘Stick” Freeman, 52, former vice president of sales; account rep Katy Bibee, 35; account rep Heather Jones, 45; Vicki Borden, director of wholesale and inside sales, 62; Karen Mann, 57, regional account representative; and John Spiewak, 48, regional sales manager in Ohio.
Hazelwood, Wombold and Freeman left the company in May 2014. Wombold, Freeman and Borden reported directly to Hazelwood, the government alleges.
All defendants have pleaded innocent. Several face April trial dates that almost certainly will be extended.
Pilot, which has paid out more than $170 million in fines and settlements since a 2013 federal raid, issued a statement Tuesday afternoon: “We’re obviously disappointed and saddened by today’s events but cannot comment further on any matters which are part of the ongoing investigation. We can say that since this unfortunate episode began, the company has put in place policies and procedures unparalleled in the industry to prevent anything like this from happening again.
“The company has cooperated with the investigation since its beginning and will continue to do so. The company repaid affected customers, accepted legal responsibility, and agreed to pay a monetary penalty. The trust and confidence of Pilot Flying J’s customers continues to be of paramount importance to the company and their continued support and loyalty is very much appreciated.”
Gallery: February 2016 indictments in Pilot Flying J scheme
Hazelwood was supervised directly by Pilot-Flying J CEO James “Jimmy” Haslam III.
Haslam, an East Tennessee philanthropist and owner of the Cleveland Browns football team, was not charged in the indictments unsealed Tuesday.
Pilot employees since at least 2008 crafted a multimillion-dollar scheme to drive up profits, bump off the competition and increase commissions for its sales representatives and executives, according to federal documents.
They’re accused of preying on trucking companies, particularly those the executives deemed too unsophisticated to notice or those who spoke English as a second language.
Trucking companies, under the reimbursement program, paid retail price for fuel and received a cut on monthly invoices, or a rebate check.
The system, though, was somewhat complicated and hard to follow for many customers, since the discounts weren’t based on a single amount. Instead, the company used a number of variables to determine the rate, including where the truck stops were located and how many competitors operated in the vicinity.
Pilot, the nation’s eighth-largest privately held firm, does business with roughly 3,300 companies and serves more than 1.3 million customers daily. It also employs 26,000 and has more than 650 properties throughout the United States and Canada.
In 2015, the company, whose official name is Pilot Travel Centers LLC, recorded revenues of almost $31 billion.
James A. Haslam II, founded Pilot in 1958 but has since retired. His son, Jimmy, is now president and CEO.
His other son, Tennessee Gov. Bill Haslam, once served as president of Pilot Corp, but stepped down more than a decade ago when he kicked off his political career as mayor of Knoxville.
Federal investigators have given no indication that they are involved in the alleged scheme.
The indictments, which were handed up last week by a grand jury that met in secret, mark the first time in the investigation in which a current or former employee didn’t cut a deal prior to charges. So far, 10 people have pleaded guilty in U.S. District Court in Knoxville to various crimes tied to mail fraud and wire fraud.
The 10 are still awaiting sentencing and each has agreed to cooperate with prosecutors.
HAZELWOOD, FREEMAN, WOMBOLD TOP THE LIST
Hazelwood, the company’s former president, is the highest ranking current or former employee connected to the financial ruse.
Hazelwood, according to secretly recorded conversations that were part of the affidavit the government released almost three years ago, appeared at two meetings – one in October 2012 and another in February 2013 – where company employees talked about the “two-tiered pricing structure that would impose higher prices of less sophisticated customers.”
Throughout the FBI recordings, he can be heard talking about ripping off customers by paying them less than what they’re owed. At one point he discussed manual rebates that customers receive at the end of the month. He called Hispanic customers targeted by the scheme “Manuel,” and suggested that employees could blame the manual rebate problems on a language barrier.
He also described which customers to target by dividing them into two types: ‘Customer A’ who double-checks everything and ‘Customer B’ who does not.
He referred to type B as “Aunt Bea” comparing that group to the over-trusting character from "The Andy Griffith Show," according to documents.
Freeman, the company’s former vice president of sales, follows Hazelwood in the company’s pecking order.
Freeman, who supervised the company’s three regional sales directors in the U.S., was featured prominently in the secretly recorded conversations, which often were laced with profanity.
In one recording that took place Oct. 25, 2012, Freeman detailed an incident in which he said Pilot bought a $1 million airplane from Nashville-based Western Express after the trucking firm discovered that Pilot owed it money.
He bragged in the recordings that he was “cost-plussin’ the guy,” and making “$450,000 a month on him.” He joked that he was ready to cut the company a check, but instead bought the broken-down plane that “wasn’t airworthy.”
Pilot then sold it.
Freeman, according to the transcripts, is credited with creating the “two-tiered” system for price fueling. There was the legitimate tier in which companies were properly reimbursed for their purchases, and then the one in which officials lowballed the customers.
Freeman, a University of Tennessee graduate who joined Pilot in 1994, called the overall scheme “a game” that he often dubbed “liar’s poker,” according to documents.
Employees who were caught defrauding customers were told to blame the mistakes on computer glitches.
Freeman said Haslam was aware of what he and others did, and that he even attended a Nov. 20, 2012, meeting that included a discussion about the matter, according to documents.
Wombold, who worked at Pilot for 22 years, reported directly to Hazelwood and was essentially equal to Freeman on the company’s organizational chart, and worked out of Knoxville before parting ways with the gasoline giant in May 2014.
At the time of his departure, his attorney, John Kelly, stressed to WBIR 10News that Wombold “played a key role in helping the company repair many customer relationships during the past 14 months."
The former vice president of national accounts for the gasoline giant, he’s now president at Fiscal Systems in Huntsville, Ala.
A LOOK AT THE OTHERS
Vicki Borden at one point during the federal investigation worked directly under Wombold. She serves as the company’s director of wholesale and inside sales out of the company’s Knoxville headquarters.
Borden used to oversee Karen Mann, who was placed on administrative leave in May 2014. Mann served as the company’s regional account representative at the Knoxville base.
Heather Jones, who was placed on administrative leave in May 2014, was working as the company’s regional account representative at the Knoxville headquarters prior to the raid.
Until 2012, she supported then-regional sales director Brian Mosher, who has since pleaded guilty to fraud tied to the rebate scam allegations.
At some point in 2012, she was transferred to Vincent Greco’s sales team. Federal documents from the time of the raid note that agents believed Jones and Mosher worked together to change the amount of rebates customers received.
COOPERATION, IMMUNITY, SENTENCING
The government suggests that the investigation began in May 2011 when Cathy Giesick, a former regional sales manager, approached federal agents about rebate scheme. Then Vincent Greco, a regional sales director out of Texas, agreed to help after agents reached out to him.
The two were granted immunity.
As of now, 10 people have pleaded guilty in U.S. District Court in Knoxville to various charges related to mail fraud and wire fraud.
They include: Arnold “Arnie” Ralenkotter, Northeast regional sales director; Ashley Judd, an account representative who addressed rebate concerns among the customers; Holly Radford, a regional account representative; Jay Stinnett, who worked with senior sales executives; Kevin Clark, regional sales manager out of Kansas City, Mo.; and Scott Fenwich, western regional sales manager out of Salt Lake City; Janet Welch, former Pilot senior account manager; Christopher W. Andrews, a regional sales manager based in Dallas, and Lexie Holden, a sales representative in Knoxville.
Mosher, the former director of sales for national accounts and the executive accused of holding the “breakout” sessions, pleaded guilty to conspiracy to commit wire and mail fraud. He is the highest ranked executive to plead.
All agreed to testify against others in the case.
At this point no sentencing dates have been scheduled for those who have pleaded guilty. But, based on federal sentencing guidelines, Mosher could face the harshest sentence – up to 10 years.
In July 2014, the company agreed to cooperate with the ongoing criminal investigation into diesel fuel rebate fraud, and pay a $92 million penalty over the next two years.
In 2013, the company reached an $85 million civil settlement with dozens of trucking companies, but six opted out of the settlement. It recently asked a federal judge to dismiss the lawsuits filed against it by five of them.
CHARITY BY PILOT, THE HASLAMS
While the alleged scheme has cast a bad light on Pilot, the company and the Haslam family maintain solid reputations as generous community donors.
"There is not one aspect of this community that the Haslam family has not touched," said Carlton Long, vice president of development and communication at East Tennessee Children's Hospital.
In May 2015, Pilot gave $2.5 million to fund a new neonatal intensive care unit at the Fort Sanders area hospital.
In December, the company pledged $10 million for new synthetic turf fields for all 13 Knox County High Schools.
"We appreciate and value their generosity," said Knox County Schools Superintendent Jim McIntyre.
That generosity extends to secondary education as well, at the University of Tennessee, from which many members of the family graduated.
In 2014, the Haslams donated $50 million to renovate the College of Business.