Jimmy Haslam, CEO of Pilot Flying J, speaks during a press conference at the company headquarters Friday, April 19, 2013 in Knoxville, 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. (AP Photo/Wade Payne)
Friday, April 19, 2013 7:51 pm
Informant: Haslam set aggressive Pilot sales tone
By ERIK SCHELZIG and STEVE MEGARGEEAssociated Press
According to court documents, sales team members said Haslam, who is the older brother of Tennessee Gov. Bill Haslam, was aware of at least some instances of employees withholding diesel price rebates and discounts from Pilot customers to boost the company's profits and sales commissions.
Haslam would not answer a reporter's question about whether he had been involved in meetings where rebate fraud was discussed. He shrugged off suggestions he might step down.
"I thought to myself, `Well, why would I do that?' Candidly, I haven't done anything wrong, No. 1," Haslam said at the company's headquarters in Knoxville. "No. 2, if there's ever a time the company needs our leadership, it's right now."
Leaders of the sales team derided some clients as unsophisticated, lazy and undeserving of rebates, according to transcripts of secretly recorded conversations.
FBI special agent Robert H. Root said in an affidavit that the practice was known by a variety of euphemisms including "jacking the discount," "manual rebates," and "screwing" the customer.
No charges have been filed in the case. Pilot, a privately-held company that posted $29 billion in revenues in 2012, is the largest diesel retailer in the country.
Haslam said the investigation was focused on a "a small percentage of our overall diesel fuel business." He did not address any specific allegations made in the affidavit, though he appeared to take issue with some of the crude language used by members of his senior sales team quoted in the transcripts.
"The color, if you will, of the comments were certainly not the way we conduct ourselves at Pilot Flying J," he said.
While the affidavit doesn't specify how much money or how many customers were involved, it makes clear the fraud was widespread and brought in millions of dollars to the Haslam family business over at least six years.
The FBI and Internal Revenue Service agents raided the company's headquarters Monday.
The National Football League said Friday it had no plans to ask Jimmy Haslam to step aside while the FBI investigates his involvement in the alleged fraud.
Haslam appeared later Friday at the University of Tennessee for the opening of an athletic training center and told AP he was continuing with the Browns.
"No change. I look forward to the draft next week," he said.
Court documents detailed how vice president of sales John "Stick" Freeman regaled an unnamed regional sales manager who was recording conversations for the FBI with tales of once being caught withholding $1 million in rebates from client Western Express. Freeman said the company had to pay back the money but laughed that the Pilot still came out $6 million ahead.
The informant asked Freeman what Haslam's reaction had been.
"He knew it all along. Loved it," Freeman said. "We were makin' $450,000 a month on him - why wouldn't he love it?"
"Did it for five years, cost us a million bucks," he said. "I mean, we made $6 million on the guy, cost us a million bucks."
Freeman said in a training session for the sales team that he did not want to discuss "moral or ethical" issues involved with the practice.
"Hey, this is a game," Freeman said, according to recordings made by an FBI informant. "We're playin' (expletive) poker with funny money, and its liar's poker with funny money."
Brian Mosher, the company's national sales director, was recorded telling colleagues that he had engaged in cutting rebates since Pilot's nearest competitor filed for bankruptcy in 2008. Pilot purchased Flying J's truck stops in 2010.
Mosher said if a customer didn't understand the nuances of pricing and rebates, he wasn't going to give him a good deal.
"Frankly, he's lazy, and he doesn't care. ... That guy does not deserve premium pricing from us, in my opinion, because he's not willing to go back and do all the work on it," he said, according to the recordings.
An unnamed FBI informant said Haslam in 2007 instituted a monthly ranking of sales representatives based on the profits they generated. That system encouraged the sales force to withhold rebates to clients in order to boost their figures, the informant said.
Mosher said he was careful to target unsophisticated clients.
"Some of `em don't know what a spreadsheet is. I'm not kiddin'," Mosher said. "So, again, my point is this: Know your customer."
Fewer than 10 percent of customers would ask for copies of how the rebates were calculated, another company official said. For those who asked for those details, Mosher said he and a colleague would "have to go through this gyration" to redo the figures to match the decreased rebate paid to the customer.
One customer, Omaha, Neb.-based Morehouse Trucking, complained and received an $80,000 check in May after Pilot said it had made a mistake.
"We had a feeling that the error was not an accident, but had no proof," manager Curt Morehouse said in a statement. "It is now obvious from the affidavits that it was not an accident.
"We hope that Mr. Haslam has the courage to make whole the other companies that his company defrauded," he said.
Megargee reported from Knoxville. AP Sports Writer Tom Withers contributed from Cleveland.