Jurors in a Chattanooga courtroom will be going inside what the nation’s largest diesel fuel retailer concedes was a corrupt sales division where fraud was taught and celebrated.
“(Expletive) them early and (expletive) them often,” jurors will hear former Vice President of Sales John “Stick” Freeman say in a secretly recorded staff meeting. “I mean, (expletive), sell it to them the way they wanna buy.”
They’ll also hear Freeman in person.
Trial to launch
Freeman’s onetime boss and alleged rip-off collaborator — former Pilot Flying J President Mark Hazelwood — and three other ex-employees of the firm, executive Scott Wombold and account representatives Heather Jones and Karen Mann, are standing trial beginning Nov. 6 in U.S. District Court in Chattanooga on charges including conspiracy to commit wire and mail fraud.
Jury selection begins Nov. 6. It likely will span the entire day. The trial is expected to stretch into late December. Jurors will get Fridays off and breaks for holidays.
Hazelwood, Wombold, Jones and Mann are the final four left at the defense table in a legal battle that began on Tax Day 2013 with a daytime raid of the diesel giant’s Knoxville, Tenn., headquarters.
The FBI soon revealed it had been probing for two years a scam within Pilot Flying J on small trucking firms buying lots of diesel fuel. The scam had been operating since at least 2008.
Jimmy Haslam, CEO and owner of the Cleveland Browns, has denied any knowledge and is not charged. Eighteen former employees in the diesel sales division have admitted promising trucking firms a certain rebate on diesel fuel but paying much less and lying when the firms grew suspicious. Two more were granted immunity.
Pilot Flying J’s board of directors has confessed criminal responsibility, agreeing to a $92 million penalty. The company also paid $85 million to settle most of the lawsuits related to the fraud scheme. It also agreed to pick up the defense tab for Hazelwood, Wombold, Jones and Mann.
Each is represented by attorneys with some of the most prestigious law firms in the country. But if a jury convicts them and an appellate court declares the trial constitutionally sound, they must pay their former employer back, court records show.
Prison, if the four are convicted, is on the horizon under federal sentencing guidelines, which get higher with each million defrauded.
But attorneys for Hazelwood and the others are already signaling the message they want to send to this jury: Just because others in the sales division were committing fraud didn’t mean this quartet knew about their crimes.
“For you to find that a particular defendant joined a conspiracy, it is not enough for the evidence merely to establish a climate of activity that reeks of something foul,” the attorneys wrote in a pitch to U.S. District Judge Curtis Collier to include that statement in legal instructions.
The battle for truckers
Four years after the raid, the federal court record is filled with details of how many in the direct sales division at the nation’s largest diesel fuel retailer became corrupted by greed at a time when the Knoxville-based firm was already making billions every year.
Pilot was in a fierce competition in 2008 for truck stop business. Back then Flying J was one of Pilot’s competitors. They wound up merging. But in that 2008 business battle, Pilot’s direct sales division was under pressure to lure in trucking firms, so Pilot began offering rebates on diesel fuel to trucking firms that would, in turn, promise to fuel all rigs at Pilot truck stops, court records show.
It was a plan that not only guaranteed big gallon sales but drew truckers into Pilot’s retail stores at its travel centers. Those truckers spent money — gifts for the family back home, showers, a hot meal, coffee and snacks.
At the end of 2008, Pilot operated more than 300 truck stops and sold more than 3 billion gallons of diesel fuel. But the firm — founded by Knoxville businessman Jim Haslam with a single gas station in 1958 — still had at least three chain competitors — Love’s, Travel Centers of America and Flying J — and competition from thousands of mom-and-pop operations across the U.S.
The idea of locking down business by offering a fuel discount wasn’t new. Pilot’s competitors did it. But most of Pilot’s chain competitors were limiting these discounts to big trucking firms.
Hazelwood, a longtime sales executive on the rise within the firm’s sales division, had a subordinate — John “Stick” Freeman — with a plan to both target smaller trucking firms with rebate offers and, the government alleges, defraud them.
Freeman, a vice president of sales whose commission depended on diesel fuel sales, called the scheme “Manuel.” It was a double entendre: The rebates were entered manually into Pilot’s accounting system and, Freeman said, many of the firms targeted in the scheme were owned by Hispanics.
The plan, Freeman would later teach other Pilot Flying J executives and sales staffers, was simple — promise a high rebate but pay low — so long as everyone kept their lies straight.
“Don’t get too cute,” Freeman warned at a training session on the rebate scam in the months before the raid.
Freeman, recordings show, talked often of how he once got “too cute,” and Pilot wound up buying an airplane from a trucking firm to appease an owner who discovered he was being cheated.
“Hey, it, this is a game,” he said in a recording. “We’re playing (expletive) poker with funny money, and it’s liar’s poker with funny money. … I don’t want to get into a moral or ethical conversation.”
By the fall of 2012, Pilot and Flying J had merged and the combined company had boosted the number of truck stops it owned to more than 500. It was selling more than 5 billion gallons of diesel every year. Hazelwood had risen to president.
But what no one in the company knew was that Vincent Greco, a sales executive based in Texas, had been talking about the rebate scam to someone outside the firm.
Send in the moles
The FBI has never publicly identified to whom Greco was talking. Some suggested a girlfriend. John Verble, a family therapist known as “Dr. John” who became a broker for Morgan Stanley Smith Barney’s Knoxville branch, says in a lawsuit he was the one who provided a sympathetic ear to Greco.
There has been no mention of him in the criminal court record. It’s not known if he is on the government’s witness list for the trial.
Whomever “confidential human source 1” is, that person went to the FBI in 2011 and, at the agency’s direction, began recording Greco. Confronted with his incriminating statements, Greco agreed to be a mole in return for immunity, court records show. Another Pilot insider, regional sales manager Cathy Giesick, also agreed to play mole.
Greco would wear a wire. Giesick would funnel the FBI information. She, too, was promised immunity. The FBI set up surveillance outside meetings Pilot executives, including Hazelwood, Freeman and Wombold, attended at locations in Lakeville, Minn.; a Pilot executive’s Rockwood-area lake house; Blackberry Farm in Walland; a resort in Orlando, Fla.; and Pilot headquarters on Lonas Drive.
Greco recorded those meetings and lots of conversations among direct sales division executives and staffers about the rebate scam and how they kept it hidden in plain sight.
The feds are watching
With Pilot leadership still unaware of the probe, the FBI and the IRS Criminal Investigation Division assigned agents skilled in forensic accounting.
The U.S. Attorney’s Office in Knoxville tapped two men to helm the prosecution who each offered distinct skill sets. Assistant U.S. Attorney Trey Hamilton is a specialist in complicated white-collar criminal prosecutions. Fellow prosecutor David Lewen is an aggressive violent crime prosecutor known for his trial acumen and jury charm.
In February 2013, Greco’s secret recordings captured Hazelwood talking about expanding “Manuel” to other trucking firms. He called it, according to court records, “Aunt Bea pricing.”
Hazelwood explained it this way:
“What we’re, what we’re really talkin’ ‘bout is two-tiered customers … Customer A, Customer B. Customer A look, looks (into) every orifice you have, Customer B doesn’t even know you have an orifice. … We got ‘Manuel.’ ‘Manuel’ does a hell of a job. Wonder what percentage of our volume’s on Aunt Bea?”
Plea deals and silence
Two months later, federal agents raided Pilot headquarters. They gave no explanation. Jimmy Haslam held a press conference, assuring the public his firm had committed no crime. The feds, in turn, made public the FBI affidavit used to justify the search. It was 120 pages long, revealed the secret investigation and laid out the government’s case that Pilot Flying J was defrauding trucking firms across the country.
Jimmy Haslam hired attorney Tom Dillard, a former federal prosecutor with decades of experience successfully defending accused white-collar criminals. Pilot’s board enlisted public relations and legal experts.
A few months passed with no indictments. By year’s end, though, many sales division executives and staffers were brokering plea deals, confessing in court and promising to testify if need be. Pilot’s board struck a deal in mid-2014.
It would be two more years before an indictment was served up against Hazelwood, Wombold, Freeman and a handful of other direct sales division staffers. Freeman and three others named in that indictment pleaded guilty earlier this year. That brought the total number of former Pilot staffers who confessed guilt to 18 and leaves Hazelwood, Wombold, Mann and Jones to face trial. They have pleaded not guilty.