Pilot Flying J
Biggest Retailer Internal Sales Team Rebate Fraud Case of Decade
 

Back in the News After 7 Years
Pilot Flying J $56.5M Sales Team Rebate Fraud - 17 Executives, Total Cost $233.5M
Convictions of former Pilot Flying J President Hazelwood, staffers overturned

Controversial 'Secret Recording' Ruling Comes Back to Haunt Verdict - Does DOJ Re-Prosecute?

A federal appellate court overturned the convictions of former Pilot Flying J President Mark Hazelwood and two members of his direct sales team on Wednesday, ruling a lower court judge shouldn’t have allowed jurors to hear a recording that included “deeply offensive racist and misogynistic language.”

In its two-to-one panel ruling, the U.S. Court of Appeals for the 6th Circuit, struck down the convictions of Hazelwood and two former sales team executives, Scott Wombold and Heather Jones, over allowing prosecutors to play a secret recording of Hazelwood spewing “profanities about African Americans and women,” according to court documents.

U.S. District Judge Curtis Collier was wrong to allow prosecutors to play at the trio’s 2018 trial secret recordings of Hazelwood making racist comments and singing along to a racist song.

“Even if somehow otherwise admissible, the recordings are a textbook violation of (federal rules) because of the risk of unfair prejudice eviscerates any purported probative value.”

Hazelwood was convicted after a four-month trial of conspiracy to commit wire fraud, wire fraud and witness tampering and sentenced to 150 months and fined $750,000.

He was the highest-ranking member of Pilot Flying J who was convicted in the plot. Two subordinates were convicted of varying crimes alongside him, and 14 others pleaded guilty. Two were granted immunity. Pilot Flying J’s board also admitted criminal responsibility.

The fraud plot — in which trucking firms were cheated $56.5 million in the five-year scheme — cost Pilot Flying J’s board $92 million in criminal penalties and $85 million in lawsuit settlements.

Wombold, convicted of wire fraud, was sentenced to 6 years in prison. Jones, who was convicted of conspiracy to commit mail fraud, received a 2.5-year sentence.

Hazelwood and his subordinates used a diesel fuel discount program Hazelwood created that was supposed to allow small trucking companies the same type of breaks on diesel fuel granted much larger firms. But Hazelwood and his subordinates shaved pennies off those discounts — with the trucking firms unaware. freightwaves.com knoxnews.com

Editor's Analysis & Opinion: Pilot Flying J Rebate Fraud

Entire 17 member sales team orchestrated a five-year scheme cheating smaller "unsophisticated' trucking firms. Skimming $56.5 million in rebate funds to increase their bonuses and company revenue. All of which led by racism and prejudice.

Company background: Pilot Flying J is one of the largest top 10 privately held companies in the United States and employs more than 24,000 employees. The company has more than 750 locations in North America.

Following this for seven years, since the initial FBI raid in 2013, when agents first raided a regional sales manager's home in Arizona and had him call Pilot Flying J CEO and Cleveland Browns owner Jimmy Haslam directly, with FBI agents secretly recording it, in an attempt to get him to incriminate himself, which was unsuccessful. As Haslam immediately forwarded the call, without saying anything, to legal.

Within hours, then raiding Pilot's corporate office in Knoxville and arresting the company president and a number of sales team members.

Whistleblower: They never named the whistleblower and very little was reported on the subject other than the famous 'secret recording' made during a national sales team meeting. But the DOJ did make deals with two sales team members to testify for immunity.

The five-year fraud scheme surrounded taking advantage of the smaller trucking firms and independent operators by skimming rebate rewards for over $56.5M. Thus increasing their bonuses significantly and increasing sales numbers.

Basically, the entire sales team including its administrator, along with the president leading the effort, were involved and cheating clients nationwide.

It was 1 year after Jimmy Haslam, CEO and owner of Pilot, bought the Cleveland Browns in 2012 and was spending the majority of his time in Cleveland. Leaving the president Mark Hazelwood alone to run the company.

The now famous 'secret recording' they're referring to was the whistleblowers recording of a sales team national meeting where the president, Mark Hazelwood was heard making racist jokes about the Browns players, the truckers, clients and detailing exactly what they were doing. Interestingly enough, Pilot Flying J paid for Hazelwood's defense and continued his salary throughout the trial. And nothing has been reported on that since.

Over the years, it's been surprising Haslam was never indicted or charged, although he made obvious contingent plans with both businesses. By putting his wife legally in charge of the Browns and selling 20% of the company to Warren Buffet, with an option to sell the remaining 80% at a later date.

The media really never questioned Haslam or raised any speculation about his involvement other than to print his public comments. In Cleveland, the media only reported the case briefly.

In this writer's opinion, Haslam got a pass on this. That is if you consider the company pleading guilty criminally and paying a $92 million dollar fine a pass. But he was also very proactive in resolving all the lawsuits that followed. Which obviously played into public opinion.

But now we've got the top player and his two closest subordinates facing another trial, or do we see some sort of settlement? After all, Haslam's brother is the Governor of Tennessee and Pilot Flying J is one of Tennessee's largest retail employers. Just a thought. Because now, no one is paying attention and we all know the prisons are overcrowded.

When it comes to white collar crime there does appear to be a double standard. As we'll be putting that question to all of you in our next article:

'Does White Collar Crime Pay or Just Pay Off' - Coming Wednesday this week hopefully.

Listing the status on all the significant retail white collar crimes we've reported on over the last few years. From rebate fraud to price fixing to pushing sales forward and creative accounting, otherwise know as 'cookin the books', to real estate fraud, insider trading, corporate espionage, and IP theft. The cases amount to billions and the prison sentences amount to virtually none.

Just my opinion. -Gus Downing

See the D&D Daily's complete timeline, events, and articles that will lead you to the obvious conclusion. Did Haslam know about the fraud? Or was he completely in the dark? And stay tuned as we drop one more hint when the DOJ makes the decsion on continuing with the prosecution or not.

Read here