Pilot Flying J CEO: Feds probing only narrow band of big company
Pilot Flying J CEO Jimmy Haslam tells reporters Friday during a news conference that a federal investigation about rebate fraud at the truck stop chain his family owns was focused on a very narrow band of a very large company. (Associated Press: WADE PAYNE)
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FBI: PILOT FLYING J EMPLOYEE SAYS CEO KNEW ABOUT REBATE FRAUD
KNOXVILLE, Tenn. — Pilot Flying J CEO Jimmy Haslam Friday told reporters that after looking at affidavits unsealed Thursday related to a federal investigation about rebate fraud at the truck stop chain his family owns, that the probe was focused on a very narrow band of a very large company.
“It still appears to us that this investigation is focused on a very narrow band of a very large company – questions about how rebates were handled to a very small percentage of our trucking company customers,” Haslam said during an afternoon meeting with reporters at which he would not take questions.
Click here to read Haslam's complete statement.
A Pilot Flying J employee told investigators that Haslam, who is also the owner of the Cleveland Browns, knew about the alleged rebate fraud, according to the FBI affidavit.
“The affidavits didn’t present a very flattering picture of our company, and were not representative of what our company is all about, but taken on the whole, they were consistent with our previous impression of the federal government’s investigation,” Haslam said. “I want to say again, that from its beginning in 1958, dad built this company on its integrity, and nothing’s changed on my watch. Our first value every day around here is to do the right thing.”
Haslam noted the importance of keeping the lines of communication open with the media and with his company’s employees, and said he had a conference call with about 300 managers hours before he met with reporters.
“I asked them to do three things,” he said. “One, keep morale up and be positive. Two, keep everybody focused. Three, do your job.”
Later Friday, during an appearance at the University of Tennessee, Haslam told The Associated Press his role with the Browns would remain the same.
"No change. I look forward to the draft next week," he said.
This will be the Browns' first draft under Haslam, who bought the franchise last year from Randy Lerner for just over $1 billion. Lerner still maintains 30 percent of the team, but that will be transferred to Haslam in four years.
Earlier, NFL spokesman Greg Aiello said the league had no plans to ask Haslam to step aside while the FBI investigates his involvement in the alleged scheme.
The 120-page affadavit filed in 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 [was] 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 the April 15 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 an earlier news conference. He said in a statement April 18 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 into 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 April 18 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 e-mail.
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," 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."
Associated Press sources contributed to this article.
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