Former Pilot Flying J President Mark Hazelwood may be the highest-ranking member of the truck stop giant charged in a $92 million fraud scheme, but his defense attorney made clear Nov. 7 just who was in charge.
“(CEO) Jimmy Haslam III and (Pilot founder) Jim Haslam II were in charge of this company, and they supervised Mr. Hazelwood,” attorney Andy Drumheller told jurors Nov. 7 in opening statements in U.S. District Court in Chattanooga, Tenn.
Drumheller’s message to jurors: Hazelwood, 58, was as clueless about the fraud scheme being carried out in Pilot Flying J’s Knoxville headquarters as Jimmy Haslam has repeatedly said he was.
“The evidence is going to show he’s not guilty,” Drumheller said.
‘Is that okay with you?’
Assistant U.S. Attorney Trey Hamilton attacked that assertion, though, with his first witness Nov. 7 afternoon.
Janet Welch, a Pilot staffer who is among the more than a dozen employees who have confessed guilt to conspiring to rip off trucking companies in a fuel rebate fraud scheme, confirmed she forwarded an email to Hazelwood in February 2008.
In that email, her boss, former Pilot Flying J regional sales director Arnold “Arnie” Ralenkotter, told her to short a trucking company a penny a gallon “unless they have a way to track cost.”
“Is that okay with you?” Welch asked Hazelwood in the email thread.
He responded, “How many gallons?”
“One hundred thousand to start with, 60,000 more coming,” she answered.
Hazelwood replied, “OK.”
Ralenkotter has pleaded guilty, too, and agreed to testify if needed.
Rewriting the manual on rebates
Hazelwood, former vice president of sales Scott Wombold and sales representatives Karen Mann and Heather Jones are standing trial in Chattanooga U.S. District Judge Curtis Collier’s courtroom on charges of conspiracy to commit wire and mail fraud. Wombold faces additional charges of lying to agents with the FBI and IRS Criminal Investigation Division. Hazelwood is also accused of witness tampering.
Hamilton and Assistant U.S. Attorney David Lewen contend Hazelwood was calling the shots on a scheme to defraud trucking firms too small and unsophisticated to discover the rip-offs by promising them high discounts for fueling up at Pilot Flying J but paying them less.
Pilot Flying J’s board of directors has confessed guilt via a criminal enforcement agreement in which the firm agreed to shell out $92 million as punishment. The board also paid out $85 million to settle related lawsuits and is paying the defense tab for Hazelwood and the three others.
The prosecutors say the scheme began as early as 2007. Using Welch’s emails, Hamilton showed the nation’s largest diesel fuel retailer changed its manual in 2008 to formally set up a plan to offer discounts to trucking firms that shifted business away from competitors. That new manual required approval from supervisors, and Hazelwood began requiring sales staff to fill out “trip reports” on their efforts to use discounts to lure in truckers, the emails showed.
Defense: No proof ex-president read reports
In trip reports shown to jurors Nov. 7, the fraud was detailed. For instance, former salesman John Spiewak – who also has confessed guilt – wrote of one trucking firm owner, “I told him I would match (a competitor’s) deal. He did not even know his current discount, so I am going to tell him that I will change the discount and make no changes.”
Drumheller, who is defending Hazelwood along with high-profile Texas attorney Rusty Hardin, conceded in his opening statement the trip reports were sent to Hazelwood. But he said the government can’t prove the ex-president actually read them.
“They’re going to ask you to infer he knew the contents of over 8,000 (trip reports),” he said.
The trial began Nov. 6. The last thing jurors heard on Monday was Lewen’s account of what he and Hamilton expect to prove – that the sales division Hazelwood helmed had been corrupted by “greed” and a thirst for power over competitors.
Jurors began their day Nov. 7 hearing from attorneys for the accused.
Drumheller flatly denied Hazelwood knew about the fraud.
‘Guilt by association’
But attorney John Kelly, who represents Wombold, conceded the former executive knew sales staff were lowering discounts without telling customers and, in fact, said Wombold “was on his way down” the corporate ladder because of his unease over it.
But Kelly said that didn’t make Wombold guilty.
“Guilt by association – that’s what this case is about,” he said. “Knowledge is not enough … That does not make you guilty. It doesn’t mean you participated in it.”
Attorney Ben Vernia said his client, Jones, had no power to offer or lower discounts and simply did what she was told to do as part of her job.
“Heather Jones did not choose which customer rebates to change,” he said. “She also did not choose how much to change them.”
Mann, attorney Jonathan Cooper told jurors, also had no intent to defraud truckers. She, like Jones, did what her bosses told her to do.
“Karen Mann never believed she was doing anything she wasn’t supposed to be doing,” he said.
‘He made a bunch of money’
Drumheller told jurors Hazelwood’s first job was washing dishes at a truck stop in Ohio where his mother worked. When he finished high school, he went into a management training program and discovered he had a knack for running truck stop businesses.
“I dare say he was a great match for this industry,” Drumheller said.
He met Jimmy Haslam in 1984 and joined Pilot as a district manager a year later, he said. Under Hazelwood’s leadership, Drumheller said, Pilot grew from a business with roughly 100 convenience stores to a firm that now has more than 700 truck stops across the country.
“Mr. Hazelwood worked his way up in this company,” he said, adding the ex-president is unapologetic about the fact that he profited mightily in his nearly three decades with Pilot Flying J.
“He made a bunch of money by the time he left that company, and he earned it,” Drumheller said.
The trial continues Nov. 8.