Four of the eight remaining defendants in a federal fraud case involving high-ranking executives with Pilot Flying J have pleaded guilty to their roles in the conspiracy.
The four defendants, including former vice president of sales John “Stick” Freeman have also agreed to cooperate with authorities in the ongoing probe. Freeman has been described by court documents and federal investigators as the architect of a scheme designed to withhold fuel rebates from certain trucking companies who entered in to fuel purchase agreements with Pilot Flying J.
As part of the plea agreement, Freeman admitted to participating in a scheme with at least 17 other Pilot Flying J employees from about Feb. 1, 2008, to April 2013. Ten other employees have already pleaded guilty. Four more are scheduled to stand trial in a Tennessee federal court in October, including Mark Hazelwood, former president of Pilot Flying J. Jimmy Haslam, Pilot Flying J CEO and brother of Tennessee Gov. Bill Haslam, has not been charged in connection with the conspiracy, which involved several of the company’s highest executives in the sales division. The other remaining defendants are Scott Wombold, vice president of national sales, and Heather Jones and Karen Mann, who worked as regional sales representatives.
The alleged conspiracy involved fraudulent and false pretenses, promises and representations made to the targeted trucking companies, including fraudulently generated invoices and rebate amounts. The indictment alleges the conspiracy involved either or both “off-invoice fraud” where the represented discount amount was not submitted to Pilot’s billing system for the customer’s invoices and “rebate fraud” where customers who received monthly rebate checks had portions of the full rebate amount “deliberately and fraudulently” withheld by various means.
The plea agreement states that there was language in the Pilot Direct Sales Manual, which cautioned employees to remember “discounts affect our profitability negatively…” and that those discounts could in turn affect the commissions paid to sales associates.
The agreement states that the conspiracy’s goals were to identify “trucking companies from Pilot’s pool of existing and prospective customers perceived to be unlikely to detect false pretenses, promises, and representations” regarding its discount program, and convincing those customers to purchase and continue to purchase fuel from Pilot under the false pretenses of the rebate scheme. The conspiracy also involved generating fraudulent invoices, rebate amounts, and correspondence in an attempt to show the company was honestly and accurately applying the discount amounts.
Also striking deals to confess are John Spiewak, a regional sales manager for Pilot Flying J; Vicki Borden, director of direct sales; and Katy Bibee, an account representative who worked directly with Freeman.
Pilot Flying J released a statement Monday saying the company was “saddened” by the news. The company has previously entered into an agreement with federal prosecutors to pay $92 million in fines and another $85 million in restitution to more than 5,000 customers.
“We are saddened by news of the pleas of four people who worked for Pilot Flying J acknowledging that they participated in defrauding some of our diesel fuel customers,” the company said in the statement. “After learning of such improper activities more than four years ago, we made whole every customer negatively affected; entered into a Criminal Enforcement Agreement with the government, which included a $92 million penalty; continued to cooperate with the investigation; and made policy, procedure and staff changes to make certain nothing like this happens again.”
Among the evidence presented in the plea agreement are emails from Freeman’s work account that show him encouraging his subordinates to lie to customers about their rebate amounts. Other evidence presented in the agreement includes transcripts of conversations Freeman had with another employee who was serving as a confidential informant for federal investigators.
Freeman also hosted a direct sales management meeting at his lake house on Oct. 25, 2012. In attendance at that meeting were fellow co-defendants Hazelwood and Wombold, and another mole from the FBI. Among the comments recorded during that meeting were Freeman’s admonitions to his sales force to take advantage of his customers: “F*** ’em early and f*** ’em often.”
Also among the revelations in the plea agreement is that defendants in the conspiracy case were taking steps as late as February 2013 to expand the scheme to include a two-tier pricing scheme to target unsophisticated customers.
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