PFJ whistleblower claims USPS victimized by rebate scheme

By Greg Grisolano, Land Line associate editor | Thursday, February 16, 2017

Trucking companies weren’t the only victims to be cheated out of rebates for their fuel purchases at truck stop chain Pilot Flying J, according to court documents filed by the man claiming to have been the key witness to expose the company’s scheme to the FBI.

Among the allegations contained in former financial adviser John Verble’s petition to the Supreme Court are claims that his former employer, Morgan Stanley Smith Barney, “knew about, condoned and assisted in their clients’ perpetration of fraud on the public,” specifically the Pilot Flying J rebate scheme.

The petition states many of the details of the rebate scheme became public in 2013. What was not revealed, according to the petition, is that one of Pilot Flying J’s largest customers is the U.S. Postal Service, which buys hundreds of thousands of gallons of diesel fuel, and that the U.S. Government was “defrauded of its rebates in the same fashion as private trucking companies.”

A spokesman for Pilot Flying J released a statement to Land Line that states the company “remains committed to doing the right thing, which has included repaying affected customers all money owed with interest, providing an independent auditor to review all accounts, and working with an external team of experts to implement additional compliance programs.”  

“Pilot Flying J will continue to cooperate with the government in its investigation of these issues. Unfortunately, we’re unable to comment further on the allegations brought by Mr. Verble given ongoing proceedings, but can say that these are not new allegations,” the statement reads.

Investigations into Pilot have led to 10 former Pilot Flying J executives pleading guilty to various crimes connected with the rebate scheme. The company agreed to pay out more than $85 million in restitution to more than 5,000 customers who had partaken in the company’s rebate plan. The company also agreed to pay $92 million in fines and accept responsibility for the criminal conduct of its employees. 

Verble initially filed suit in federal court in eastern Tennessee in February 2015, alleging that his former employer, Morgan Stanley Smith Barney had violated the Dodd-Frank Act and other state and federal statutes by terminating his employment due to his cooperation with the FBI in investigating both the bank and Pilot. The trial court dismissed the case on grounds that Verble had failed to complain to the Securities and Exchange Commission before his termination, and was thus ineligible for whistleblower status and protections. The U.S. Sixth Circuit Court of Appeals in Cleveland affirmed the district court’s ruling on Jan. 13, but for different reasons than the lower court. The appeals court claimed that Verble’s initial complaint lacked specificity about his alleged cooperation with the FBI.

According to court documents filed in connection with the wrongful termination suit, Verble was placed on paid administrative leave from Morgan Stanley in May 2013, a few weeks after the FBI raided Pilot Flying J’s corporate headquarters in Knoxville, following a meeting between the plaintiff and members of Morgan Stanley’s executive staff, in which the company asked Verble a series of questions concerning whether he was cooperating with federal agents.

The suit claimed that Verble did not discuss details of his involvement in any investigation, but his “evasive answers to the (company’s) questioning clearly signaled” that he was working with authorities, the complaint states. He was fired on June 17, 2013, allegedly as a result of his involvement in assisting the FBI in the Pilot Flying J investigation, and investigations into allegations of fraud and insider trading at Morgan Stanley.

The suit claims that Verble was advised by the FBI to say nothing if he was questioned about his alleged involvement, and that he contacted the FBI and informed them what happened after the initial meeting.

Plaintiff’s attorney Richard Neely, who served 22 years as a justice or chief justice of the West Virginia Supreme Court of Appeals, alleges that “a strong political reason” is at the heart of why the District Court denied the case. He claims that the issue was “disingenuously ducked … because developing the merits of the this case will embarrass prominent persons in Knoxville and Cleveland.”

“At the time Petitioner wore a wire for the FBI and uncovered massive fraud at Pilot Flying J, the president of Pilot Flying J was James ‘Jimmy’ Haslam, perhaps Knoxville’s most prominent citizen and philanthropist, owner of the Cleveland Browns football team, and the brother of William ‘Bill’ Haslam, the then governor of Tennessee and the richest person in American politics until the arrival of Donald Trump.”

Federal courts are divided on the definition of “whistleblower” under Dodd-Frank’s anti-retaliation provision, with the Fifth Circuit holding in 2013 that an alleged violation must be reported to the SEC to be covered. Later that year, the Second Circuit issued a contradictory ruling.

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