Cleveland Browns owner Jimmy Haslam’s truck stop company Pilot Flying J has agreed to pay a $92 million fine to avoid prosecution for withholding diesel fuel discounts from hundreds of customers.
Pilot Flying J entered a criminal enforcement agreement, the US Attorney's Office for the Eastern District of Tennessee says in a July 14 press release. That means the company has accepted legal responsibility for its employees’ criminal conduct, which cost customers more than $56 million, the US Attorney Office says. In return, the US government will not prosecute Mr. Haslam’s company as long as they abide by the agreement.
Customers were cheated out of discounts in two ways: Pilot either fraudulently reduced the monthly rebates or reduced off-invoice discounts. Pilot has also acknowledged its employees engaged in other criminal behaviors, such as supervisors teaching employees how to reduce customers’ rebates during training in November 2012, according to the agreement.
The news comes as the Federal Bureau of Investigation and the IRS Criminal Investigation continue to work together on a lengthy investigation into allegations of fraudulent conduct at Pilot. In 2011, an informant told the FBI that that a regional sales manager said Pilot was cheating customers out of contractually set rebates, according to the Associated Press. On April 15, 2013, investigators executed search warrants at multiple locations, including Pilot’s headquarters in Knoxville, Tenn. As the FBI and IRS investigated Pilot, several lawsuits sprung up, alleging that the company had deliberately held rebates to benefit the company.
The rebates that Pilot denied customers help them significantly cut down expenses. Semi-trucks are expensive to fuel; diesel trucks get 6.5 miles per gallon on average, according to Popular Mechanics (that figure can range four to eight miles per gallon). An 18-wheeler usually has two fuel tanks, with each tank holding between 100 to 200 gallons of fuel depending on the type of truck, according to 1st Commercial Credit, a financial services provider. To fill up an 18-wheeler with diesel, that means someone would need between 200 and 400 gallons of diesel fuel. It would cost a truck company around $800 to $1,600 to fill a single 18-wheeler.
Haslam has denied any wrongdoing, but there have been suggestions that he was aware of the illegal activity. After a Pilot regional manager agreed to record conversations with colleagues for the FBI, the manager spoke with John 'Stick' Freeman, Pilot's vice president of sales, according to the Associated Press. During the Oct. 25, 2012 conversation, Freeman said Haslam knew about the tactics all along and 'loved it.' Freeman also talked about how he got caught withholding a customer's rebate and even though he had to pay back $1 million, he still came out $6 million ahead.
Haslam’s company will pay customers back the $56 million they had lost, according to the agreement. Haslam and his company are looking forward to putting ‘this whole unfortunate episode’ behind them and repairing the damage Pilot has caused, Haslam says in a statement.
“We’ve been committed from the beginning of this to doing the right thing, and that remains our commitment,” he says.
Haslam’s brother, Tennessee Gov. Bill Haslam, has an undisclosed ownership share in the company, but has said he is not involved in Pilot's day-to-day operations, according to the Associated Press. Pilot has annual revenues of around $30 billion.
The Monitor reached out to the American Trucking Association, which would not comment on the matter.