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FBI: Pilot Flying J employee says CEO knew about rebate fraud; documents posted

Pilot Flying J CEO Jimmy Haslam speaks to the media during a news conference at the Pilot Flying J headquarters Tuesday, April 16, 2013, in Knoxville, Tenn. Haslam said FBI and IRS raid Monday on the company was part of a federal criminal investigation into claims of failure to pay rebates to trucking customers. (Associated Press: J. MILES CARY/Knoxville News Sentinel)

The Associated Press

4/18/2013

NASHVILLE, Tenn.  — A Pilot Flying J employee told investigators that CEO Jimmy Haslam, who is also the owner of the Cleveland Browns, knew about rebate fraud at the truck stop chain his family owns, according to an FBI affidavit unsealed Thursday.

Haslam announced just after noon Friday he would make a statement at the company's headquarters at 4 p.m. EDT. Haslam said he would take no questions.

The 120-page document filed federal court in Knoxville, where Pilot is based, alleges that members of the company's sales force preyed on smaller trucking companies by reducing the amount of rebates they were owed for buying certain amounts of fuel.

Click here to access all the documents related to the investigation as posted by the Knoxville News Sentinel.

Special Agent Robert H. Root alleged a "conspiracy and scheme to defraud executed by various Pilot employees to deceptively withhold diesel fuel price rebates and discounts from Pilot customers ... for the dual purposes of increasing the profitability of Pilot and increasing the diesel sales commissions of the Pilot employees participating in the fraud."

The affidavit was filed to secure the search warrants used in Monday's raid on the Pilot Flying J headquarters.

One employee identified only as a confidential source told investigators that the rebate scheme was discussed during sales meetings attended by Haslam and Pilot President Mark Hazelwood.

The informant said the practice was known by a variety of euphemisms ranging from "manual rebates" to "screwing."

Haslam denied wrongdoing in a news conference earlier this week. He said in a statement Thursday that "the foundation of this company is built on its integrity and that any willful wrongdoing by any employee of this company at any time is intolerable."

 “I’ve read the affidavits.  I now understand more clearly the questions the federal investigators are exploring,” the Haslam statement said. “We will continue to cooperate with the federal investigation and continue our own investigation in these allegations.

“I value the relationships we have with our customers, our vendors and our team members across this country and regret that they have to go through this with us, but I trust and believe their faith in this company and its principles has never been misplaced.”

Informants secretly recorded conversations among Pilot employees holding frank and jocular discussions about the rebate scheme, and agents interviewed current and former members of the sales team.

The investigation began after agents were contacted by a Pilot Flying J employee in May 2011 and continued through this month. Jimmy Haslam bought the Cleveland Browns in a $1 billion deal last summer.

Haslam was in Cleveland on Thursday to help prepare for next week's NFL draft. League spokesman Greg Aiello declined to weigh in on whether the investigation would affect Haslam's role as team owner.

"We must respect the process of a federal investigation and decline comment," Aiello wrote in an email.

Pilot Flying J is a private company with annual revenues of $29 billion. It is mostly owned by Haslam; his brother Tennessee Gov. Bill Haslam; their father and company founder Jim Haslam; and other family members.

It's the nation's No. 1 retailer of diesel fuel, and its customer rebate program with trucking firms is at the center of the investigation.

When Pilot bought its nearest competitor Flying J out of bankruptcy in 2009, federal trade officials worried the combined entity owned by the powerful Haslam family could corner the market on diesel fuel.

To alleviate "competitive concerns," the Federal Trade Commission in 2010 required Pilot to sell some truck stops to a competitor, Love's, and share its fuel purchase technology before it could merge.

When asked earlier this week whether the probe was related to the FTC's previous concerns about unfair competition, Haslam replied: "We would not think so." An FTC spokesman declined to comment.

According to the IRS, it is common for fuel stops to hand out monthly rebates on purchased fuel. Rebates should be reported as income, as a reduction of expense, or as a reduction to the cost of the new asset.

Not all customers doing business with Pilot are on the rebate program.

Pat Marsh, chairman of Shelbyville, Tenn.-based Big G Express, said his trucking company had a rebate program set up when it was a client with Flying J. Since the Pilot takeover, that system has been replaced with pre-negotiated prices paid at the pump with swipe cards. It tracks the mileage on trucks, the identity of the driver and the amount of fuel purchased

"The more we buy, the cheaper the price is," said Marsh, who is also a Republican state representative, said in an interview before the affidavits were released. "We negotiate our price talking to the corporate people and the sales people and by how many gallons we purchase."

Marsh said he was surprised to see the Pilot Flying J headquarters raided.

"We've had nothing but a great relationship with those guys," he said. "They treat us fairly."