Pilot Flying J, government reach $92M agreement to avoid prosecu

Pilot Flying J, government reach $92M agreement to avoid prosecution

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KNOXVILLE (WATE) - Pilot Flying J has reached an agreement with the federal government that it will not be prosecuted in the fuel rebate matter, assuming it follows the terms of the agreement, including a monetary penalty and full cooperation with the government's investigation of fraudulent conduct.

The agreement, which is called a "Criminal Enforcement Agreement," is neither an indictment nor a finding of guilt. The statement says the company will not be prosecuted as long as the company complies, but individuals may still be prosecuted.Read the full agreement [PDF]

Pilot Flying J also acknowledges and accepts full responsibility for criminal conduct committed by its employees, including some personnel with the operation and oversight of its direct diesel fuel sales group, which has 23,000 employees and 650 retail locations nationwide.

Over the two-year term of the agreement, Pilot Flying J will pay a $92 million monetary payment and will keep the government advised of the status of its internal compliance program.

"As the agreement breaks down what the sentencing guidelines are, depending on the number of victims and the amount owed and restitution, it makes sense what the penalty in fact was," said Melanie Reid, Associate LMU Law professor. 

In the agreement, Pilot confirmed that fraudulent conduct involving diesel fuel price discounts was carried out within its direct sales group with the knowledge and participation of employees responsible for its operation and oversight. Pilot also confirmed that supervisory employees encouraged participation in discount fraud for the company's benefit.

Associate LMU Law Professor Melanie Reid weighs in and says both the federal government and Pilot Flying J benefit from the agreement.

"I think it's more beneficial to the government in the sense of they're going to have to spend significant resources, both financially and man hours, to try to put enough evidence into a trial that could last weeks, months, and it's beneficial to Pilot in that they can move on," said Reid. 

For example, during a November 2012 sales training meeting, a supervisor encouraged and taught employees how to deceptively reduce rebates to some customers with the purpose of making targeted accounts more profitable for the company.

Pilot also confirmed the two methods generally used to execute the discount fraud: either by either by fraudulently reducing the amount of monthly rebate amounts to targeted customers or by deceptively reducing the off-invoice discounts of targeted customers.

Pilot acknowledged that its employees emailed spreadsheets among each other that documented their fraudulent reductions, and that in some cases, its employees fabricated “back up” documentation sent to customers to justify fraudulently reduced rebate or discount amounts.

Additionally, Pilot confirmed that in February 2013 certain Pilot employees involved with Direct Sales expressed an intent to expand the scheme to defraud by having Direct Sales personnel identify and target Pilot’s off-invoice customers that were considered to be too unsophisticated to carefully monitor diesel pricing data in conjunction with their periodically received fuel invoices. As set forth in the agreement, certain Pilot employees involved with the operation and oversight of Direct Sales referred to this new aspect of the fraud as “cost plus B plan” – named after having two tiers of cost pricing for different types of customers: tier “A” and tier “B.” Pilot further acknowledged that certain employees involved with the operation and oversight of Direct Sales planned not to inform the targeted unsophisticated customers of their placement in the higher-priced tier, and these employees occasionally referred to these targeted customers as “Customer Bs.”

“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,” said CEO Jimmy Haslam in a Pilot Flying J statement. “We’ve been committed from the beginning of this to doing the right thing, and that remains our commitment.”

“The past 15 months, since the federal government served a search warrant on the company’s headquarters, have been very trying for all involved,” said Aubrey Harwell, Pilot Flying J’s attorney. “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.”

“Under the terms of the agreement,” Harwell added, “the company has certain obligations, which it fully intends to fulfill. We appreciate the diligence the U. S. Attorney’s office has shown in this matter. It certainly has been no less diligent than our own internal investigation. I believe this agreement is the result of the good intentions of both sides to do the right thing.”Previous coverage: Pilot Flying J Investigation

FBI and IRS investigators raided Pilot Flying J's West Knoxville headquarters on April 15, 2013 after tipsters claimed the company was not properly paying rebates owed to diesel fuel customers. Since then, 10 employees have pleaded guilty to crimes and lawsuits have been filed. The company has entered into settlement agreements with some customers.

“The terms of this agreement, including the significant monetary penalty and the very serious consequences if Pilot fails to comply, demonstrate quite clearly that no corporation, no matter how big, influential, or wealthy, is above the law,” said U.S. Attorney Bill Killian.



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