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In a diary last week I reported that the corporate headquarters of the Pilot Flying J company, by far the largest diesel fuel distributor in the United States, was being raided by the FBI.  This is big political news in Tennessee because our governor, Bill Haslam is a member of the family that started and still runs the company.  The current CEO is his brother Jimmy Haslam.

Governor Haslam still owns a large piece of the business, but has not worked for the company since 1999, when he had risen to the position of president.

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The Tennessean is reporting today on a 120 page affidavit filed by the FBI which outlines the allegations of fraud.

The accusations are fairly simple.  Pilot Flying J signed trucking companies to fueling contracts, promising them rebates, then through billing deception cheated them out of those rebates.  It doesn't sound like much at first, but the amounts are in the many millions of dollars.

Pilot’s sales managers and staff in FBI recordings described some trucking company customers as too unsophisticated or too lazy to realize the thousands of dollars they were being shorted. Some employees in the recordings bragged about their exploits and advised others on the practice. Others worried about getting caught when a customer wised up.

Jimmy Haslam, 59, who has run Pilot as its CEO since 1995, admitted in a news conference last week that the federal probe has “rocked” the company. But he also defended Pilot and said that the FBI investigation “is zeroed in on what we believe to be a very narrow part of our business.”

It is unclear the extent to which the Haslams might be directly implicated.  The investigation centered around the corporate sales staff, headed by a VP named John Freeman.
The most revealing information obtained by the FBI and outlined in its affidavit comes from a series of sales meetings held in late 2012 and early this year that were secretly recorded by a Pilot sales executive who had become one of two federal government anonymous informants. The FBI refers to this person as CHS-2, which stands for confidential human source.

In an Oct. 25 meeting at Freeman’s lakeside home near Rockwood, Tenn., Freeman tells regional sales directors that Brian Mosher, who the affidavit identifies as the company’s director of national sales, will train sales staff on how to handle the rebate program.

But the recordings indicate Jimmy Haslam's awareness of a  $1 million settlement with with a company called Western Express.

As the investigation proceeds, Governor Haslam will have to decide how long he can back his brother without doing political damage.  Meanwhile, this will do serious damage to the business:

Regardless of the final outcome of the ongoing criminal investigation, emerging details have been stinging enough to already roil the trucking industry. Some trucking customers have said they are looking for alternative sources of diesel.
A Tennessean article from Friday indicates that some customers knew they were being cheated, and they are very unhappy:
The affidavit sent shock waves throughout the trucking industry, said Tommy Hodges, owner of Shelbyville-based Titan Transfer Inc. and a former chairman of the American Trucking Association.

“Until today, I considered Jimmy Haslam a friend,” said Hodges, whose company operates 375 over-the-road trucks. “But when someone you count as a friend lets you down, it kind of puts a knot in your stomach. We’re still buying fuel from them today, but we’re looking at other options.”

Stay tuned.
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