CHATTANOOGA, Tenn. (AP) — Tennessee Gov. Bill Haslam says the truck stop company he co-owns can start putting the fraud investigation behind it after it struck a deal with prosecutors to pay a $92 million fine and acknowledge that employees cheated customers.
The U.S. Attorney’s Office for the Eastern District of Tennessee announced the company has agreed to pay the fine in an agreement signed Friday.
Haslam is not involved in Pilot Flying J’s day-to-day operations of the company that is co-owned by his brother, Cleveland Browns owner Jimmy Haslam.
Ten employees of the truck-stop company have pleaded guilty to participating in the scheme to cheat customers out of promised fuel rebates and discounts. The agreement does not protect anyone at Pilot from prosecution and requires the company to cooperate with an ongoing investigation.
A federal judge has granted preliminary approval to a proposed settlement agreement between Pilot Flying J and several trucking companies that had sued over allegations of fuel rebate fraud, reports the News Sentinel. U.S. District Judge James M. Moody signed the order on Tuesday. Several plaintiffs had previously filed a memo in U.S. District Court in Arkansas highlighting a proposed deal that was also supported by the Knoxville-based truck stop chain.
Tom Ingram, a spokesman for Pilot, said Tuesday the company was aware that the deal was being considered by a judge, “but we can’t comment until and if he rules.”
In addition, Nashville attorney Aubrey Harwell, who is representing Pilot, on Tuesday guessed that the total rebates owed by Pilot to all of its customers — not just the plaintiffs involved in the latest settlement — could be as much as $35 million.
A memo filed on Tuesday by attorneys for the plaintiffs in the settlement deal said it was “an extraordinarily good result for the class.”
It said the deal involves full repayment by Pilot of any amount owed, plus 6 percent interest. In addition, Pilot would pay all attorneys fees plus an “incentive award” to each plaintiff.
“All accounts will be audited, and the auditors will be audited, all at the expense of Defendants,” the memo said. “Moreover, Defendants will submit to an injunction to prohibit these underpayments from occurring in the future.”
According to the judge’s order, Horne LLP will review the work performed by Pilot’s auditor in calculating the compensation to be paid to eligible class members in the deal.
Parties to the agreement include National Trucking Financial Reclamation Services, Edis Trucking, Townes Trucking and R&R Transportation….Pilot said that as of Tuesday, it is aware of at least 13 other lawsuits pending in other courts based on substantially similar allegations.
A company that is negotiating with the state to mine for coal under public land has more than one link to the company largely owned by Gov. Bill Haslam and members of his family, reports Josh Flory. Hillsborough Resources Limited is negotiating with the Tennessee Wildlife Resources Agency to do mining work under Catoosa Wildlife Management Area, the 82,000-acre game-management area on the Cumberland Plateau.
The company drew scrutiny last month when it was disclosed that Tom Ingram, a consultant to Haslam, had failed to register as a lobbyist for the company. Ingram has said the failure to register was an inadvertent oversight on the part of Marcelle Durham, president of The Ingram Group.
Ingram also does consulting work for Pilot Flying J, the Knoxville-based truck stop chain that is run by the governor’s family. (And for the governor personally.)
Hillsborough also has another tie to Pilot.
Hillsborough is a subsidiary of Houston-based Vitol Inc., according to Vitol spokesman Don Goldberg. Vitol’s president is Miguel Loya, a Houston businessman
…It’s not clear if Loya still has an ownership stake in Pilot — the company has refused to fully identify its current owners — but Ingram confirmed that Loya serves on the board of Pilot.
Goldberg, the spokesman for Vitol, said there is “zero relationship” between that role and anything related to the Hillsborough proposal.
Excerpt from a Cleveland Plain Dealer story:
CLEVELAND, Ohio — R. Brad Martin was chief executive of Saks Inc. a decade ago when the luxury retailer was embroiled in a fraud investigation that found the company wrongly kept millions of dollars owed to clothing suppliers.
Martin today is the board member at Knoxville, Tenn.-based Pilot Flying J who will sign off on an internal investigation into whether Pilot kept millions of dollars in fuel rebates owed to trucking companies.
The similarities between the two cases and the close ties between Martin and Pilot CEO Jimmy Haslam — for years they’ve moved in the same social circles and their family summer homes are a stone’s throw from each other in the Smoky Mountains — make some question whether Martin can be objective about any findings of fraud at Pilot.
“At the very least there was a cloud over his tenure at Saks,” said Christopher Ideker, a forensic accountant who has participated in many audit committee investigations for companies. “To me, you have a guy calling the shots on an investigation about stealing from customers who was investigated for stealing from vendors. That seems pretty straightforward.”
Leland Wykoff, a shareholder with Saks and its predecessor for 15 years, said he quizzed Martin at Saks’ 2005 annual meeting about how clothing suppliers had been cheated. Wykoff said the CEO took responsibility for what occurred on his watch.
“I leaned forward,” Wykoff said Friday, recalling his conversation with Martin. “I pulled my glasses down on my nose and I locked eyes with him. There was a pregnant pause and I said, ‘Then why are you still here?’ You could have heard a pin drop.”
Haslam, owner of the Cleveland Browns, said he initially didn’t know about any rebate problems at Pilot but said the company’s investigation now shows that about 250 trucking firms are owed money. He suspended several sales managers and took other remedial steps after the April 15 raid by FBI agents on Pilot headquarters.
Chief among Haslam’s moves was his selection of Martin, 61, of Nashville, to oversee the internal investigation at the privately-held company, running on a parallel track to federal agents’ work.
Saks Inc., owner of the venerable Saks Fifth Avenue department store chain, came into regulators’ crosshairs around 2004.
…Saks ultimately settled the SEC complaint about its treatment of vendors without admitting or denying fault — shelling out about $60 million, according to C. Warren Neel, who was head of Saks’ audit committee.
Martin, CEO and chairman between 1989 and January 2006, was never charged in the wrongdoing. His brother Brian Martin, Saks’ general counsel, as well as two other executives, were fired over the scandal, though also never charged.
Neel’s committee found no direct failings among other senior officers. But the committee criticized the level of communication between Saks’ executive suite and board members, and recommended reducing or eliminating bonuses for Brad Martin and the company’s chief financial officer.
Martin stepped down as CEO in a management shakeup within months of the SEC settlement.
Neel, who served as dean of the business school at the University of Tennessee for 25 years and had been invited by Martin to sit on Saks’ board, said the in-house examination was difficult and very uncomfortable.
“The social relationships for me were a major emotional problem,” he said. “I was with friends.”
Neel said he found no evidence that Martin’s brother or other executives “were a major part of the problem, but the SEC required that we do something.”
– Note: Gov. Bill Haslam was a Saks executive 1999-2001.
As a high-profile FBI investigation of Gov. Bill Haslam’s lucrative family business grinds on, a loophole in Tennessee law is increasing the secrecy that has long surrounded his personal wealth, reports the Commercial Appeal. The scope and detail of Haslam’s assets are largely missing from his most recent Statement of Disclosure of Interests, an annual accounting of investments and income that elected officials are required to make public.
That’s because, much as former Gov. Phil Bredesen before him, Haslam created a blind trust that shields most of his vast financial portfolio from pubic disclosure. Haslam is acting in accordance with a state law that allows legislators, the governor and members of his cabinet to keep assets off disclosure forms when those assets are part of a blind trust.
The difference in the degree of disclosure is stark for Haslam, whose family business, Knoxville-based Pilot Flying J, is ranked by Forbes as the nation’s sixth largest privately owned company with $29.2 billion in annual sales:
As a candidate in 2010, Haslam listed 250 separate investments worth $10,000 or more.
In his latest disclosure, filed April 5, he listed only 11 such investments.
…Tennessee’s blind trust exemption to financial disclosure requirements appears much less restrictive than ones governing federal executive branch employees and public officials in Florida.
Federal law requires a member of the executive branch with a blind trust to estimate the worth of that trust by listing a range of its value.
Even more stringent, a bill signed last week by Florida Gov. Rick Scott requires public officials there to list the full value of a blind trust. In addition, Florida law requires public officials who form a blind trust to give a public accounting of individual assets placed in the trust.
Tennessee has no such requirements, said Drew Rawlins, executive director of the Bureau of Ethics and Campaign Finance.
Consequently, Haslam’s latest disclosure simply lists “Haslam Blind Trust,” as one of a handful of investments and sources of income along with Campbell’s name and address as trustee.
…In addition to the blind trust, Haslam’s April 5 disclosure lists 11 investments, including Pilot and three real estate ventures, Hasbitt II, Hasbitt III and LVL Properties. The report lists a new investment in an entity called Lost Valley Ranch Corporation. Details were unavailable.
He lists nine sources of income, including his gubernatorial salary, which he returned, Pilot, and PTC, Inc., a Pilot venture. State law requires office holders to list sources of income of $200 or more and investments worth at least $10,000 but doesn’t require a specific figure.
In contrast, Haslam’s 2010 disclosure of sources of income and investments covered 12 pages,.
…Bredesen…said he doesn’t recall the blind trust exemption being added to his bill (in 2006), but said he long considered financial disclosure requirements for the executive branch to be “extremely light.” That’s why he issued an executive order requiring the governor and top aides to disclose how much income they earn. Under that order, Haslam, who made a fortune in health care, disclosed he earned $7.8 million in 2007, for example.
However, Haslam rescinded Bredesen’s executive order when he took office in January 2011 and the rule no longer applies.
By Erik Schelzig, Associated Press
NASHVILLE, Tenn. — Brad Martin, the newly appointed interim president of the University of Memphis who once hired Gov. Bill Haslam as an executive at Saks Inc., was named Wednesday by Pilot Flying J to oversee an internal investigation into FBI allegations of fraudulent business practices involving rebates to trucking customers.
Martin is a board member of Knoxville-based Pilot, a private company owned mostly by Haslam family members. The country’s largest diesel fuel retailer is run by CEO Jimmy Haslam, the governor’s brother and owner of the NFL’s Cleveland Browns.
Federal agents on April 15 raided the Pilot headquarters, the building housing its computer servers and the homes of three sales executives. The FBI alleges members of Pilot’s sales team deliberately withheld rebates to boost Pilot profits and pad sales commissions. No criminal charges have been filed.
Bill Haslam was president of Pilot when he was hired by Martin in 1999 to start up online retail operations for Saks in New York. Martin said at the time that Haslam had “contributed substantially to the remarkable growth and success of Pilot,” which had grown from a single gas station into a $2 billion business. Pilot’s annual revenues today stand at $31 billion, according to Moody’s Investors Service.
After 12 minutes of “easy questions,” Gov. Bill Haslam was asked about the Pilot Flying J investigation during a summit on manufacturing in Washington last week “to give you the chance if you want to say anything,” reports Chris Carroll.
“Oh, well, thanks,” Haslam murmured. “I guess.”
When the laughter died down, the governor offered a full-throated defense of the family business, but Jordan’s question prompted a pained hesitation that may redefine Haslam as political opponents search for chinks in his armor.
…Democrats already are connecting the FBI investigation with an old fight with Haslam. Soon after taking office, the governor rolled back financial disclosure rules for himself and other top officials. That meant he didn’t have to disclose his assets, many of which originated with Pilot.
“I thought it was a mistake before the FBI raid. I think it’s a double mistake to continue down that path now,” Tennessee Democratic Party Chairman Roy Herron said. “I don’t think any of us know how severe the conflicts are or how much he’s personally profited from what appear to be — what apparently the FBI thinks — were wrongful actions.”
..In an interview after the Washington Post event, Haslam emphasized the ongoing nature of the investigation, saying he has “no doubt that the top management of the company always intends to do the right thing.”
“No night sweats,” he said. “At the end of the day, I’m going to run a re-election campaign based on what I’ve done as governor.”
Like Ingram, Haslam stressed that it’s been more than a decade since he played a direct role in the company. (Note: Tom Ingram is a political consultant to Bill Haslam and has been retained as a PR consultant to Pilot Flying J and CEO Jimmy Haslam during the federal investigation.)
“It’s been so long since I’ve worked there that a whole lot of the folks that are mentioned [in the affidavit] are people I don’t even know,” he said.
The governor made that statement six hours before The Tennessean newspaper published a story that implied otherwise. The newspaper identified 10 Pilot executives in the FBI affidavit who gave a total of $56,000 to Haslam in campaign contributions.
… (Democratic party tweets cited: “Nine Pilot executives mentioned in the FBI affidavit gave a combined $56k to @BillHaslam’s campaign.” “Gov. @BillHaslam, political campaign directly benefited from Pilot Flying J’s scheme to cheat truckers, small biz.”)
In response to the Tennessean report, a Haslam spokesman stressed the governor’s army of contributors and said, “It’s natural that a Pilot employee would be one of those.”
…Chattanooga Tea Party President Mark West said he thought the government’s aggressive approach means there’s something sinister behind the scenes. Some have speculated pure politics; leading the investigation is Bill Killian, the U.S. attorney in East Tennessee appointed in 2010 by President Barack Obama.
“It’s more than likely politically motivated,” West said.
Haslam rejected that outright.
“I’m not typically a conspiracy-theorist type of guy,” he said, “and I’m not in this either.
By Erik Schelzig, Associated Press
NASHVILLE, Tenn.– Cleveland Browns owner Jimmy Haslam on Monday acknowledged a massive hit to the credibility of the family-owned Pilot Flying J truck stop chain following FBI allegations of the widespread fraud of customers at the country’s largest diesel retailer.
Haslam announced at the company’s Knoxville headquarters that he has suspended several members of the sales team after an affidavit filed in federal court disclosed secretly recorded conversations in which Pilot staff boasted about taking advantage of less-sophisticated trucking company customers.
“I, more than anybody, understand the damage that’s been done to our reputation, our brand and our relationships in the trucking community,” Haslam said. “Eight days ago I think we had the best relationships, the best trust in the trucking industry. And we now have the worst. I understand that, I accept responsibility for it.”
Privately held Pilot Flying J posted $29 billion in revenues in 2012. Haslam, who bought the Browns last year, is the brother of Tennessee Gov. Bill Haslam, who also maintains an undisclosed stake in the company founded by their father with a single gas station in 1958.
Jimmy Haslam didn’t name the people placed on administrative leave, specify how many have been suspended or whether they are still being paid. He gave a statement to reporters but refused to take questions.
Federal officials have unsealed the search warrants used in Monday’s raid on Pilot Flying J headquarters in West Knoxville, reports the News Sentinel. A confidential informant working with federal agents has alleged that a rebate fraud scheme at Pilot Flying J occurred with the knowledge of top executives, including CEO Jimmy Haslam, according to an affidavit made public on Thursday.
The affidavit was filed in support of a search warrant application. Federal agents raided the company on Monday.
The affidavit was filed by Robert H. Root, a special agent with the FBI. It said that in May of 2011, a confidential human source, referred to as CHS-1, contacted the FBI to report knowledge of fraudulent activity by employees.
The affidavit said a current sales employee, referred to as CHS-2, had confided to CHS-1 that employees had been intentionally charging certain customers a higher price than the contractually agreed upon price, then concealing that fact.
The affidavit said CHS-2, a current regional director of sales, was contacted by agents in October and confirmed the existence of the fraud.
According to the affidavit, CHS-2 said the fraud has occurred with the knowledge of Haslam and company president Mark Hazelwood. Specifically the person said rebate fraud-related activities have been discussed during sales meetings in Knoxville at which Hazelwood and Haslam were present.
Root said based on information obtained in the investigation, there is probable cause to believe certain Pilot employees have conspired and schemed to engage in rebate fraud for many years.
Specifically, it said there is probable cause to believe certain employees conspired to defraud customers that were deemed by some employees to be too unsophisticated to catch that their agreed-upon discount deal with Pilot was being changed.
Gov. Bill Haslam said he knows little about a raid on Pilot Flying J headquarters in Knoxville and has “faith and confidence” in his brother’s ability to deal with the situation as CEO of the company.
In a brief meeting with reporters, the governor said there was “gossip and speculation” about the raid that is unfounded and unfair and “it’s not fair for me to play that game.”
“The truth is, I don’t know,” said Haslam.
He was asked, for example, about speculation that the raid could have been retaliation for his recent decision against expansion of Medicaid under the federal Affordable Care Act and rejected the notion.
“Absolutely not,” he said.
When he became governor in January, 2011, Haslam put all this financial assets in a blind trust – except for his Pilot holdings. The governor said he has no role in managing the company, though he retains a substantial but undisclosed financial interest.
Haslam said he is leaving management to his brother, CEO Jimmy Haslam, and “I have faith and confidence in him.” In fact, the governor said he is not trying to learn any details of what happened and why.
“It’s not my job,” he said. “I’ve got a full-time job.”