Pilot Flying J to Pay $92 Million Penalty to Government Over Fuel-Rebate Scheme

This story appears in the July 21 print edition of Transport Topics.

Pilot Flying J will pay a $92 million penalty as part of an agreement with the federal government to take responsibility for the criminal actions of employees who shortchanged trucking companies on their diesel fuel rebates.

In return, the government will not prosecute the truck-stop chain if it meets the terms of the agreement. Pilot also is required to provide full restitution to fraud victims and cooperate with the ongoing investigation of current and former Pilot employees being conducted by the FBI and IRS.

The agreement provides no protection from potential prosecution to any individuals, according to separate July 14 releases from the company and the government.

The terms, including the monetary penalty, “demonstrate quite clearly that no corporation, no matter how big, influential or wealthy, is above the law,” Bill Killian, U.S. attorney for the Eastern District of Tennessee, said in the government statement.

“In addition, the company’s agreement to fully cooperate with the United States, including its obligation to identify its employees’ criminal conduct, will assist the ongoing federal investigation,” he added.

Pilot, the nation’s largest truck-stop operator, acknowledged that employees in the company’s direct sales group withheld agreed-upon diesel discounts from some trucking customers over several years. It also confirmed that supervisors encouraged the practices, and even taught them during a 2012 sales training meeting at company headquarters.

“We, as a company, look forward to putting this whole unfortunate episode behind us, continuing our efforts to rectify the damage done, regaining our customers’ trust, and getting on with our business,” Pilot CEO Jimmy Haslam said in a statement. “We’ve been committed from the beginning of this to doing the right thing, and that remains our commitment.”

The agreement states that Pilot workers generally executed the fraud by reducing the amount of monthly rebates or off-invoice discounts to targeted customers.

The scheme first came to light in April 2013, when federal agents raided the company’s Knoxville, Tennessee, headquarters.

Since then, 10 Pilot employees have pleaded guilty to mail and wire fraud charges and agreed to cooperate with the federal investigation, the government said.

Haslam, who also owns the NFL’s Cleveland Browns, has said he had no knowledge of the scheme and has promised to pay back customers everything they’re owed.

Aubrey Harwell, Pilot Flying J’s attorney, said he believes the new agreement is “the result of the good intentions of both sides to do the right thing.”

“The past 15 months, since the federal government served a search warrant on the company’s headquarters, have been very trying for all involved,” he said in the company’s statement. “The company has cooperated fully with the government and will continue to do so. As to its customers, the company has gone to extraordinary lengths to understand and identify any wrongdoing and make it right.”

To date, Pilot has made more than $56 million in restitution payments and more than $12 million in additional “make-good” payments to thousands of customers.

In November, a federal judge in Arkansas approved an $84.9 million settlement offer from Pilot to reimburse as many as 5,500 customers included in a class-action lawsuit against the company.

That settlement includes a payout of more than $66 million in principal and interest to Pilot customers, as well as about $14 million for the attorneys who represented them and more than $4.5 million for a team of accountants who audited 7,000 Pilot customer accounts.

That settlement did not include separate lawsuits filed by trucking companies that opted out of the class action.

The new agreement also credited the company with making leadership changes in its direct sales group, enhancing its ethics program and taking personnel action against employees who participated in the fraud.

U.S. Attorney Killian said the agreement “ensures that Pilot’s extensive remediation efforts will continue until all trucking company victims have received full restitution and until Pilot has demonstrated to the United States that it has implemented sufficient internal controls to prevent this kind of fraudulent conduct from ever occurring again.”

The district attorney’s office declined to provide further comment, citing the continuing investigation.

Pilot Flying J President Mark Hazelwood left the company in May, but the truck-stop chain did not state a reason for his departure.