Pilot Flying J (Pilot) has reached an accord-- of sorts, given an apparent difference in interpretation of the terms-- with federal prosecutors regarding the criminal conduct of some of its employees that led to the giant truckstop operator being investigated for skimming fuel rebates owed to trucking customers.

A news release issued by the Office of William C. Killian, U.S. Attorney, Eastern District of Tennessee, states bluntly that per the “Criminal Enforcement Agreement with the United States” that the truckstop chain has entered into with the government, Pilot has agreed to:

  • Accept legal responsibility for the criminal conduct of its employees, which caused more than $56 million in loss to its customers
  • Agreed to pay full restitution to every victim of the (fuel-rebate) fraud
  • Further acknowledge the gravity of its employees’ criminal wrongdoing by agreeing to pay the United States a $92 million monetary penalty

What’s more, the agreement with the U.S. Attorney’s Office and the Dept. of Justice (DOJ) “expressly states that it provides no protection from prosecution to any individual, and moreover, imposes a continuing obligation on Pilot to provide complete cooperation with the ongoing federal investigation of current and former Pilot employees relating to fraudulent conduct involving the sale of diesel fuel.”

The deal also requires Pilot to periodically report to DOJ “what it has done to ensure that a system of internal accounting controls and other compliance procedures have been established to prevent fraudulent conduct from occurring again in the sale of diesel fuel.”

U.S. Attorney Killian also stressed that if the company “materially breaches its obligations under the agreement, Pilot has agreed that the United States may file the criminal information, attached to the agreement, and will not contest the allegations in that charging document.”

Killian’s statement points out flatly that the “FBI’s and IRS-Criminal Investigation’s joint investigation [of Pilot] is ongoing.” And this agreement related to criminal activity does not affect any civil litigation brought against Pilot by its customers.

The government statement on the deal clearly indicates no guarantees have been given Pilot against future prosecution of Pilot employees or Pilot itself related to the rebate skimming.

However, that is arguably not quite the same interpretation of that aspect of the deal as reflected in Pilot’s own news release on the settlement.

For its part, Pilot stated that it has “reached an understanding [with the government]… that the company will not be prosecuted, assuming it follows the terms of the agreement, including paying a monetary penalty [of $92 million] over the next two years and fully cooperating with the federal government’s investigation of fraudulent conduct within the company’s diesel fuel sales discount programs.”

Pilot’s statement also argued that the agreement with federal law enforcement is “neither an indictment nor a finding of guilt.  It clearly states that the company will not be prosecuted under any current circumstances so long as the company complies with the terms of the agreement. However, individuals may still be prosecuted.”

Pilot’s attorney Aubrey Harwell commented that since the federal government served a search warrant on the company’s headquarters on April, 15, 2013, Pilot “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.”

“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,” stated Pilot CEO Jimmy Haslam. “We’ve been committed from the beginning of this to doing the right thing, and that remains our commitment.”

Pilot also said that, per the agreement, it “acknowledges and accepts full responsibility for any criminal conduct committed by its employees, including some personnel involved with the operation and oversight of its direct diesel fuel sales group, an approximately 90-member division of the company, which overall has 23,000 employees and 650 retail locations nationwide.”

Along with paying the $92 million penalty assessed to it, Pilot said it has committed “to keep the government advised of the status of its internal compliance program, which it voluntarily initiated immediately following the execution of the warrant last year.”

The U.S. Attorney’s news release also detailed the workings of the discount-fraud scheme, stating that Pilot had confirmed it was “executed generally in one of two ways: either by fraudulently reducing the amount of monthly rebate amounts to targeted customers or by deceptively reducing the off-invoice discounts of targeted customers.”

In addition, Pilot acknowledged that “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.”

But it didn’t stop there. According to the U.S. Attorney, the company also 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.”

In addition, reported the U.S. Attorney, “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.’”

Knoxville, TN-based Pilot Flying J ranks itself as “the largest operator of travel centers in North America…. [and that it] provides professional drivers more than 65,000 parking spaces, 4,400 showers and 4,000 diesel lanes, more than 2,200 of them with DEF at the pump.”