CHATTANOOGA, Tenn. - Federal prosecutors have long insisted the goal of a fraud scheme at Pilot Flying J was to boost the truck stop giant’s profit and market share, and this week they served up numbers to try to prove it.
Jurors in U.S. District Court in Chattanooga this week heard testimony and saw financial records showing that Pilot Flying J’s margin on diesel fuel sales, the number of truck stops it controlled and the amount of diesel fuel it sold all grew substantially during the time of the fraud at issue in the ongoing trial of the firm’s former president and three subordinates.
Former Pilot Flying J President Mark Hazelwood, former vice president Scott “Scooter” Wombold and former regional account representatives Heather Jones and Karen Mann have been standing trial since November on wire and mail fraud conspiracy charges linked to a five-year scheme beginning in 2008 to defraud trucking companies of promised discounts on diesel fuel.
Fourteen former sales executives and staffers have already pleaded guilty. Two others, including former executive turned mole Vincent Greco, were granted immunity. Pilot Flying J’s board of directors has admitted criminal responsibility. CEO Jimmy Haslam, who owns the Cleveland Browns, has denied any knowledge of the scheme and is not charged.
Pilot’s board agreed to a $92 million criminal penalty. That figure includes an estimated fraud figure of $56.5 million. Pilot Flying J has also shelled out $85 million to settle lawsuits filed by deceived trucking companies.
Assistant U.S. Attorneys Trey Hamilton and David Lewen wrote in indictments served up in the years following the April 2013 raid of Pilot Flying J’s Knoxville headquarters that the “conspiracy’s goals were to increase Pilot’s market share of diesel fuel sales over its competitors (and) to maximize Pilot’s profit for each gallon of diesel fuel sold to trucking companies targeted by the conspiracy.”
The prosecutors contend it wasn’t so much the profit derived from the fraud itself that boosted Pilot Flying J’s market share and profitability but the pledges from deceived trucking companies to switch their business to the firm in return for promised discounts that were later reduced without their knowledge.
They sent current Pilot Flying J President Ken Parent to the witness stand to testify to that.
Parent told jurors Pilot Flying J’s profits from diesel fuel grew from $420 million in 2008 when prosecutors say the scheme began in earnest to $830 million in 2012. The number of truck stops controlled by Pilot Flying J jumped from 300 in 2008 to 475 in 2012. The truck stop giant sold 3.5 billion gallons of diesel fuel in 2008. By 2012, that figure had grown to 5.3 billion gallons. The firm’s profit margin on diesel fuel sales grew from 12 cents per gallon in 2008 to 15.6 cents per gallon in 2012.
“Do pennies matter?” Hamilton asked Parent, referring to the pennies Pilot Flying J’s sales executives shorted trucking companies.
“Absolutely,” Parent responded. “A penny on five billion gallons would be $500 million in profits.”
A company spokesperson stated: “The fraud represents a fraction of the company’s overall profits, revenues and customer discounts during that same period, and every cent, with interest, has been repaid to the trucking companies affected. Since 2013, the company has continued to grow, opening an average of 22 travel centers per year for a total of 111 new travel centers over the last five years.”
Ex-president’s pay tied to Pilot Flying J profit
Jurors heard Jan. 11 that Hazelwood’s paycheck was tied to Pilot Flying J’s profitability, and it grew fatter during the length of the conspiracy. In 2008, Hazelwood’s total pay was $13.9 million. By 2012, it was $26.9 million.
Wombold earned commission not only on his own sales work but that of the executives who worked under his command. Testimony Jan. 11 showed his commissions increased from roughly $130,000 in 2008 to $357,130 in 2012. His total pay grew from $522,8887 in 2008 to $1.2 million in 2012.
Jones and Mann earned much smaller commissions from the sales executives’ profits. Testimony showed Jones earned $22,924 in commissions in 2008. By 2012, that figure was $61,283. Mann made $49,520 in commissions in 2008. That number rose to $67,790 in 2012.
Hazelwood’s defense attorney, Rusty Hardin, has portrayed his client’s subordinates as “rogue” salesmen who were competing for promotions, which would earn them a bigger slice of the Pilot Flying J profitability pie.
But Kevin Clark, a former salesmen who has pleaded guilty in the case, testified this week he felt pressured to join in the fraud.
“I felt personally pressured to do it,” Clark said.
Lewen asked, “Did you know that what you were doing was wrong?”
“Yes,” he answered.
Lewen then asked why he did it.
“I did those things to save my job … more to show I was on board,” he said. “It was never about promotions. I did it because I felt like if I didn’t, I wouldn’t have a job.”
Move to unseal racist recording transcripts
The trial continues Jan. 12. Also set for Jan. 12 is a hearing requested by USA Today Network-Tennessee in which the news organization, joined by the Cleveland Plain Dealer newspaper in Ohio, the Chattanooga Times Free Press, WBIR-TV in Knoxville and WKYC-TV in Cleveland, will seek to have unsealed transcripts of the entirety of secret recordings that captured Hazelwood and his subordinates making racially offensive comments, using racial slurs and mocking the Cleveland Browns and their fans.
The prosecutors only played snippets of those recordings in court. Those snippets were used by the prosecutors to try to contradict Hardin’s assertion that Hazelwood was too savvy a businessman to do anything, including engaging in fraud, that would damage Pilot Flying J’s reputation.