Pilot Flying J Case Taking Shape
More details emerge via "star" witness's plea agreement; 11th suit filed
Published in CSP Daily News
KNOXVILLE, Tenn. -- With two employees pleading guilty to conspiracy in the Pilot Flying J fuel rebate case--the first to be charged following the investigation that went public with an April 15 raid on the company's Knoxville, Tenn., headquarters by FBI and IRS agents--details of the scheme are beginning to become clearer, as well as details of how the case against the company will proceed. Meanwhile, the lawsuits keep piling up.
Regional sales director Arnold "Arnie" Ralenkotter has pleaded guilty to one count of conspiracy to commit mail fraud; regional accounts representative Ashley Smith Judd also has pleaded guilty to conspiracy. Federal prosecutors allege members of Pilot's sales team deliberately withheld rebates on diesel fuel purchases to boost Pilot Flying J profits and to pad sales commissions.
The language in the plea deals suggests prosecutors are positioning Judd to be a star witness, said a report by The Knoxville News Sentinel.
Two others--a former employee and a regional sales director based in Texas--have been granted immunity for their cooperation, the report said.
Federal prosecutors describe Judd in her plea agreement as a reluctant participant in the scheme--an idealist lured by Pilot Flying J's promise of integrity who quickly became disillusioned when she learned what the firm was allegedly doing, said the report, adding that Judd provided agents with a spreadsheet of fraudulent rebates and served as an "evidentiary tour guide" when agents raided Pilot Flying J's headquarters.
Court records unsealed so far make clear the upper echelon of Pilot Flying J are targets in the investigation, which began a year ago, said the newspaper, which described how the scheme began to unravel.
In March, Judd was growing increasingly nervous, as were company executives, according to an affidavit filed by FBI Agent Robert Root after the raid. That same month, CEO James Haslam and sales director John Freeman told Ralenkotter that the firm needed to review all its rebate amounts, but did not say why. Freeman had gotten caught cheating trucking company Western Express of $1 million and was forced to buy--with Haslam's knowledge--an old airplane from the firm to make up for the rebate, Root wrote.
By April 1, CFO Mitch Steenrod and general counsel Kristen Seabrook ordered the sales staff to prepare spreadsheets showing the rebates paid and the figures actually owed, the affidavit stated. Steenrod's son-in-law, Jonathan Duvall, was on the sales staff and, according to the affidavit, regularly made secret cuts to rebates owed his customers.
It is not clear from the affidavit why Pilot Flying J's top managers began what appears to be an internal audit of its rebates, said the report. In a secretly recorded conversation, one account representative theorized they were worried about their financial liability should the scam be uncovered, the report said.
And in other news related to the case, the 11th lawsuit against Pilot Flying J has been filed. Paul Otto, who recently worked as an independent truck owner and operator for W.N. Morehouse Truck Line in Omaha, Neb., filed the federal lawsuit in U.S. District Court in Nashville, Tenn., reported The Plain Dealer.
Otto, of Wisner, Neb., is seeking punitive damages and class-action status, claiming Pilot Flying J withheld tens of millions of dollars in diesel fuel price rebates and discounts from customers since at least 2005.
Pilot Flying J has more than 650 retail locations and is the largest operator of travel centers and travel plazas in North America. Its network provides customers with access to more than 60,000 parking spaces for trucks, more than 4,400 showers and more than 4,000 diesel lanes, of which more than 2,800 offer diesel exhaust fluid (DEF) at the pump. Pilot Logistics Services is one of the largest independent energy logistics companies in North America, selling and distributing more than 1.3 billion gallons of refined petroleum products and serving more than 15,000 customers. Together, Pilot Flying J and Pilot Logistics Services generate sales of approximately nine billion gallons of petroleum annually.