SHEILA BURKE, Associated Press
NASHVILLE, Tenn. (AP) â?? The federal investigation into the truck stop chain owned by the family of Tennessee Gov. Bill Haslam and Cleveland Browns owner Jimmy Haslam led to its first convictions this week and threatens to widen against employees at Pilot Flying J.
Court documents allege that sales teams were being trained on how to scam the company's customers out of rebates and get away with it.
Pilot's regional sales director and regional accounts representative both pleaded guilty Wednesday to conspiracy to commit mail fraud. The pleas were entered in U.S. District Court in Knoxville. Prosecutors have offered to recommend a much lighter sentence for both employees provided they cooperate with federal investigators and reveal the extent of how many people in the company knew about the fraud.
The Knoxville-based chain is run by CEO Jimmy Haslam, the brother of Tennessee Gov. Bill Haslam. Pilot Flying J, the country's largest diesel retailer with annual revenues of $31 billion, was founded by their father.
Jimmy Haslam has denied any wrongdoing and has suspended several members of the sales team, but he has declined to identify exactly who has been suspended. An affidavit unsealed last month shows that a Pilot employee was secretly recorded saying Jimmy Haslam knew what sales people were doing, though he has denied knowing of any fraud.
He also has said an internal review suggested about 5 percent of the company's customers received less rebate money because of manual adjustments by Pilot employees.
"The statements released by the federal court today do not come as a surprise given what we've been learning in our own internal investigations, but are nonetheless disappointing," Pilot Flying J spokesman Tom Ingram said in a statement. "We want to assure our customers that we are taking every step to correct any wrongdoing that has occurred and to make certain that it does not happen again."
Regional sales director Arnold Ralenkotter and regional accounts representative Ashley Smith Judd pleaded guilty to scamming the company's customers out of rebates, a practice well-known among both sales staff and executives as "jacking," according to court documents. Conviction on the charge carries a maximum of 20 years in prison.
"Mr. Ralenkotter realized what was happening at the company was wrong and he clearly admitted that to agents," Ralenkotter's attorney, Ed Yarbrough, said. "He admitted guilt because he thought it was the right thing to do, and he will cooperate with the investigation in the future."
Yarbrough, a former U.S. Attorney for the Middle District of Tennessee, declined to say what kind of information Ralenkotter has that could be helpful to federal authorities.
Both Ralenkotter and Judd were charged earlier this month in a document typically filed when defendants are cooperating with investigators.
Court documents in Ralenkotter's and Judd's cases show that fraud was well-known among sales staff and that Pilot's national account sales director taught employees how to defraud trucking companies out of rebate money without getting caught. The national account sales director was not named in the plea agreements Wednesday, but an affidavit unsealed in April alleged national sales director Brian Mosher trained employees on how to get away with the fraud.
Mosher could not be reached for comment. Public records did not list a telephone number for him.
Court records say it was often difficult for trucking companies to track how much money they were entitled to because there were so many variables in the company's diesel price discount program.
Documents indicate people both higher and lower than Ralenkotter were aware of the fraud. Ralenkotter even threatened to take a customer account away from a subordinate if the worker did not go along with the deception, court documents say.
Court documents in Judd's case show there may have been more than 50 companies defrauded by Pilot.
On April 15, the same day FBI agents raided the company's headquarters, they also searched the homes of three regional sales directors, including Ralenkotter's home in Hebron, Ky., according to an affidavit. That document indicated that the FBI and the Internal Revenue Service have been investigating the company for about two years, and that they had secret recordings of company officials discussing the rebate scheme.
A spokesman for the Republican Tennessee governor referred to previous comments by Bill Haslam about the probe. The governor has insisted he has "faith and confidence" in his brother's ability to deal with the situation and that there had been "gossip and speculation" about the raid on the company. The governor has no role in running the company, though he does have a significant financial stake in the business.
At least eight trucking firms have sued Pilot over the rebate program. Some have retained former FBI Director Louis Freeh's firm as part of their lawsuits.
Associated Press writer Lucas L. Johnson III in Nashville and AP Sports Writer Tom Withers in Cleveland contributed to this report.
Copyright 2013 The Associated Press.