A witness described as a "star employee" at Pilot Flying J testified Wednesday in Chattanooga that she assumed that CEO Jimmy Haslam III knew of a scheme to defraud trucking companies out of millions of dollars by cheating them on promised discounts.
Janet Welch, an inside account executive at the Knoxville headquarters who dealt directly with the outside reps carrying out the deceit, said, "I assume that Jimmy Haslam knew. He was at the sales meetings at times and he is a totally hands on manager. He knew the numbers."
Houston attorney Rusty Hardin, who represents former Pilot CEO Mark Hazelwood, asked, "Are you aware of anything that was going on in that company that he (Haslam) was unaware of?" She replied, "No."
Ms. Welch said Jimmy Haslam, who is also the owner of the Cleveland Browns NFL franchise, had frequent meetings with Hazelwood. She said, "They were so close to the sales guys it is hard to have anything going on that they would not be aware of."
No charges have been brought against Jimmy Haslam. His brother, Tennessee Governor Bill Haslam, left the company prior to the fraud conspiracy.
On trial in addition to Hazelwood are former vice president Scott "Scooter" Wombold and two former sales accountants, Heather Jones and Karen Mann. Fourteen other members of the sales team have pleaded guilty, including Ms. Welch. They are awaiting sentencing by Judge Curtis Collier, who is presiding at the trial at the Federal Courthouse.
The jury heard a recording of a sales meeting talk by salesman Brian Mosher in which he described the scheme to tell certain "unsophisticated" trucking firms they were getting a certain discount, then actually give them lesser discounts. The audio was made by an informant who was working with the government.
Mosher said of trucking executives, "Some of 'em don't know what a spreadsheet is." He said the average trucking official "doesn't know what cost-plus pricing is. He isn't going to take the time to find out. He's lazy." He said the trucking executive "doesn't deserve" the full price cut or rebate.
Mosher also could be heard saying, “It’s an art. It’s a feel. It’s a do what you can, and don’t expose yourself.” Ms. Welch said the latter remark meant "don't get caught cheating."
At one point when Mosher described the ploy, there was laughter in the room.
Attorney Hardin said the November 2012 sales session was the first time that Hazelwood had not conducted the meeting. He was not present, but Wombold was. Jason Holland, a new employee who had come over to Pilot from Comdata, expressed reservations about the ruse, saying at Comdata such matters were "black and white" rather than "gray."
Defense attorneys noted that Wombold told the new employee that he "tended to be in your camp." But prosecutor Trey Hamilton said Wombold did not condemn the scheme and used words like "may" and "maybe."
Mosher said at the meeting that "John and I began doing this about the same time." He referred to John Freeman, another outside sales rep.
Ms. Welch, who joined Pilot in 1998 when it was a much smaller company, said the fraud began around 2007/2008. Pilot, which began in 1958 with a single gas station owned by Jimmy Haslam III, doubled in size in 2010 when it merged with Flying J. By 2012, it had $34 billion in annual revenue and 26,000 employees. It was the sixth largest private company in America.
The witness said sales reps did not try the scheme on all customers, including the U.S. Postal Service. But she said, "The more you made on the customer, the more you made on your salary." However, she said her own salary was capped, so the fraud benefited her little.
She said large national accounts "were harder to cheat" because they had sophisticated programs in place to monitor billing. She said, "They were watching their pricing a little bit closer."
The witness told of one email outlining a cheating scheme against one company that went to Hazelwood. The president asked how many gallons of fuel were involved monthly, and he later said OK.
Ms.Welch said Hazelwood was "a very nice man." She agreed that he worked long hours, often got out into the field, and continually came up with ideas to improve the operation.
Ms. Welch said at the time she did not consider that she might be doing something illegal. However, in one email concerning a change to what had been promised a trucking firm, she wrote, "This makes me nervous." She told the jury, "I thought we were lying to the customer. We were going to get caught and it was wrong."
Prosecutor Hamilton said the sales reps would tell the customer one discount figure, "but have their fingers crossed behind their backs."
Attorney Hardin noted that Ms. Welch and others who pleaded guilty were facing a maximum five years in prison, while those on trial could get up to 20 years.
Asked why she pleaded guilty, Ms. Welch said, "It would drive me nuts to go through this for four and a half years." Getting emotional, she said, "I've got daughters 26 and 24 and two grandkids."
She told of being at the office around noon on April 15, 2013, when agents burst in. She said there were more law enforcement personnel in the search party than the 20-25 employees at the office.
The witness said, "We were eating lunch. At first I thought it was a joke."
Everyone was told to stand up, and they were segregated into separate areas.
She said she was moved into a room and interviewed by four law enforcement personnel. Afterward, she said she and the others were hustling to find lawyers. She talked with one that night and had a meeting with him the next day.
Arnie Ralenkotter, a former outside sales director for the Midwest and Northeast, said he pleaded guilty to admit his wrongdoing and to tell the truth.
He said the truth was not what he told many of his customers. In one trip report he told of dealing with the Falcon trucking firm which he said had an Optimizer system "that's not too bright." He said a competitor was offering the company a better deal, so he upped that offer. However, he said he instructed the office to pay a discount lower than what he had agreed.
He said, "I was cheating 'em out of their agreed-upon deal. It was making more money for the company and more money for myself."