Prosecutor: Former Pilot Flying J President Approved of and Planned to Expand Fraud Scheme
CHATTANOOGA, Tenn. — Former Pilot Flying J President Mark Hazelwood didn’t merely know his sales division was “infected” with a greedy plot to deceive and defraud trucking companies. He promoted the chief architect of the plot and made plans to grow the scheme, a federal prosecutor told jurors Feb. 5.
Assistant U.S. Attorney Trey Hamilton spent more than two hours Feb. 5 in closing arguments taking jurors on a trip back through the testimony and evidence he and fellow prosecutor David Lewen have been presenting since November against Hazelwood and three former subordinates.
The quartet are accused in a wire and mail fraud conspiracy that 16 other former staffers of the nation’s largest diesel fuel retailer have already admitted, including two who were granted immunity.
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Pilot Flying J’s board of directors has also already admitted criminal responsibility for a plot to lure small trucking firms to switch their business to the truck stop giant in return for discounts the sales staff never intended to fully pay.
Ex-president ‘knew cheating was going on’
But Hazelwood, former vice-president Scott “Scooter” Wombold and former regional account representatives Heather Jones and Karen Mann insist they are innocent.
Hamilton told jurors there was no doubt that Hazelwood knew about the scheme, which spanned years but began in earnest in 2008.
“Mark Hazelwood knew cheating was going on because he received trip reports” in which sales executives openly discussed defrauding trucking companies, Hamilton told jurors. Hazelwood, the prosecutor said, had commanded his staff to send him those reports, and Hamilton used emails to show Hazelwood read them.
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Hamilton noted testimony from former sales executive Brian Mosher in which Mosher said it was Hazelwood who told him defrauding customers “was a good idea” if Mosher wanted to move up the corporate ladder.
Hamilton pointed out that Hazelwood gave his approval to the idea of Mosher teaching the art of fraud at a mandatory training session at Pilot Flying J headquarters in Knoxville in November 2012 and was captured on secret recordings talking about expanding the fraud scheme during a meeting in February 2013.
And, Hamilton argued, it was Hazelwood who decided to promote sales executive John “Stick” Freeman to a vice-president’s job even after Freeman got caught cheating a Nashville trucking firm – leading Pilot Flying J to buy a broken down airplane from that firm for $1 million to soothe the firm’s owner.
Freeman openly boasted about it – so much so that even CEO Jimmy Haslam was captured on tape joking about Freeman’s “plane deal.” Haslam maintains his innocence and has not been charged.
“That man (Freeman) you heard on the recording was promoted by that man – Mark Hazelwood,” Hamilton said as he pointed toward Hazelwood during the Feb. 5 closing arguments in U.S. District Court in Chattanooga.
‘Sticking his head in the sand’
Hamilton said Wombold’s voice, too, was captured on secret recordings made by Vincent Greco, a sales executive turned mole for the FBI and IRS Criminal Investigation Division, and during which the fraud scheme was openly discussed.
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The prosecutor pointed out testimony from a subordinate of Wombold’s who recalled that Wombold said “if he was guilty of anything, it was sticking his head in the sand.” And, Hamilton argued, the fraud scheme could not have been carried out without the aid of Mann and Jones, who did all the paperwork associated with it, calling them “essential to the successful operation of the conspiracy.”
“The United States has proven all of these defendants … are guilty beyond a reasonable doubt of all the offenses charged in the indictment,” Hamilton told jurors.
Jones’ attorney, Ben Vernia, in his closing argument Feb. 5 did not dispute a fraud scheme was carried out.
“We’re not contesting some people at Pilot did some very bad things,” he said.
‘He told her it was OK’
But Vernia insisted an uneasy Jones asked Mosher, who was her supervisor, “if it was OK” to change customers’ promised rebates without their knowledge.
“He told her it was OK,” Vernia said. “It was an industry practice … Brian Mosher has a knack for convincing people. He convinced Heather.”
Vernia argued Jones was simply doing what she was told so she could keep her job and had no intent to defraud anyone.
“If the person you’re talking to says this is perfectly fine … it’s not possible (for Jones) to voluntarily join the conspiracy,” Vernia told jurors. “She was just lied to.”
Jurors will return to the courtroom Feb. 6 to hear closing arguments on behalf of Hazelwood, Wombold and Mann and could hear a final round of arguments from the prosecution. Deliberations could begin as soon as Feb. 7.
The prosecutors contend the goal of the fraud scheme was to grow Pilot Flying J’s profits and its market share.
Fat profits
Pilot Flying J’s profits from diesel fuel grew from $420 million in 2008 when prosecutors say the scheme began in earnest to $830 million in 2012. The number of truck stops controlled by Pilot Flying J jumped from 300 in 2008 to 475 in 2012.
The truck stop giant sold 3.5 billion gallons of diesel fuel in 2008. By 2012, that figure had grown to 5.3 billion gallons. The firm’s profit margin on diesel fuel sales grew from 12 cents per gallon in 2008 to 15.6 cents per gallon in 2012.
Hazelwood’s paycheck was tied to Pilot Flying J’s profitability, and it grew fatter during the length of the conspiracy. In 2008, Hazelwood’s total pay was $13.9 million. By 2012, it was $26.9 million.
Wombold earned commission not only on his own sales work but that of the executives who worked under his command. Testimony showed his commissions increased from roughly $130,000 in 2008 to $357,130 in 2012. His total pay grew from $522,8887 in 2008 to $1.2 million in 2012.
Agents with the FBI and IRS CID raided Pilot Flying J’s headquarters in April 2013.
Since then, Pilot Flying J’s board has paid $92 million in criminal penalties and $85 million in lawsuit settlements. The board is also footing the bill for the defense of its former executives and staffers.
