November 7, 2017 10:00 AM, EST

'Greed and Power' Fueled Pilot Flying J Fraud, Prosecutor Says

Former Pilot Flying J President Mark Hazelwood, far left, after being arraigned Feb. 9, 2016, on charges including conspiracy to commit wire fraud and mail fraud as well as witness tampering. Michael Patrick/Knoxville News Sentinel

Mark Hazelwood wasn’t hurting for money. Neither was Pilot Flying J, his employer and the nation’s largest diesel fuel retailer.

So why would Hazelwood, then the company’s president, and his sales team allegedly scheme to shave pennies off promised diesel fuel rebates to trucking firms? Assistant U.S. Attorney David Lewen on Nov. 6 offered this answer:

“Why did this conspiracy exist? Greed and power,” Lewen told jurors in U.S. District Court in Chattanooga, Tenn., on Nov. 6 in opening statements in what is expected to be a two-month trial in the ongoing probe of a fraud scheme within a sales division of the truck-stop giant.

Jury seated

Hazelwood, former vice president of sales Scott Wombold and former account representatives Heather Jones and Karen Mann are being tried on charges of conspiracy to commit wire and mail fraud. The charges are in connection with a scheme Lewen and Assistant U.S. Attorney Trey Hamilton say spanned five years and netted Pilot Flying J — and its sales division staffers — millions in fraudulently obtained profits.

The trial comes after an April 2013 raid at Pilot Flying J’s Knoxville headquarters that already has led to guilty pleas from more than a dozen of its executives and support staff. The FBI and the IRS Criminal Investigation Division had been investigating the fraud scheme since 2011, using moles who wore recording devices and sneaked agents records and information.

Pilot Flying J CEO Jimmy Haslam has denied any knowledge of or role in the scheme. Pilot Flying J’s board of directors has confessed criminal responsibility, agreeing in a deal with the U.S. Attorney’s Office to pay $92 million as punishment. The board has paid another $85 million to settle lawsuits filed by victimized trucking firms and is paying the defense tab for Hazelwood and his three alleged co-conspirators.

The Nov. 6 proceedings began with jury selection. U.S. District Judge Curtis Collier did not allow either side to pose questions to potential jurors. He did that himself, streamlining the process.

Although nearly half of the roughly 45 potential jurors questioned by Collier had followed news of the raid and ensuing indictments, none expressed any bias either for or against Pilot Flying J and its accused former employees.

RELATED: John Verble, the informant who helped sack Jimmy Haslam’s family business, Pilot Flying J

RELATED: The 18 former employees charged in the Pilot Flying J federal investigation

The final jury consists of 16 people — 12 jurors and four alternates — from Hamilton County, Tenn., and surrounding counties. The case is being tried in Chattanooga because that’s where Collier holds court. The jury is made up of eight women and eight men and is mostly a mix of white, middle-aged professionals and retirees.

Prosecutor: Motive was ‘greed and power’

Lewen made his opening statement late Nov. 6 afternoon. Attorneys for the four accused will get a chance to present their opening remarks to jurors on Tuesday.

Lewen told jurors Pilot Flying J was already one of the largest truck-stop companies in the nation when Hazelwood gave his approval to a fraud scheme in 2008.

“Ladies and gentlemen, Pilot is not the only diesel fuel supplier in town,” Lewen said, showing jurors a slide bearing the logos of Pilot and its chief competitors, Love’s Travel Stops and Travel Centers of America.

“These are the three big dogs,” he said. “These three competitors were in intensive competition with each other … It’s a zero sum game. You have to beat your competition.”

Padding pay

To do that, Hazelwood and his subordinates promised trucking firms discounts on every gallon of diesel bought from Pilot Flying J. But, Lewen told jurors, Hazelwood and his fellow sales executives weren’t satisfied with merely beating the competition, so they concocted a plan to cheat trucking companies too unsophisticated to monitor their rebates — promising a high discount but paying a much lower one.

“They did it to put extra profit money in their pockets,” Lewen said.

Hazelwood’s pay was tied to Pilot Flying J’s profitability, he said. The more money Pilot Flying J made from diesel fuel sales, the more money he made.

“He wanted more — more victims and more money,” Lewen said of Hazelwood.

Wombold, Jones and Mann earned commissions, so every penny shaved from a promised rebate padded their paychecks, too, he said.

“Each of these four defendants lied and cheated their way to profits,” he said. “They picked customers that were easy marks. If you don’t pick the right companies, you can get caught. These pennies they cheated the trucking companies became pennies in their pockets. Lying, cheating and stealing. That’s what this case is about.”

Lewen told jurors they would hear secret recordings of various meetings at which the fraud scheme was not only discussed but celebrated and hear from some of those Hazelwood subordinates who took plea deals in the case.

He gave jurors a preview of what they’ll hear Hazelwood say about the scheme with this directive from the former Pilot Flying J president to his sales force: “Rebate, rebate, masturbate, make him feel special.”

“That’s the leader of direct sales,” Lewen said, pointing toward Hazelwood.

Distributed by Tribune Content Agency, LLC