Plea agreement in Jimmy Haslam Pilot Flying J case indicates prosecutors have star witness
Plea deals hint at what's ahead
Jamie Satterfield, KnoxNews.com
12:00 PM, Jun 2, 2013
6:29 PM, Jun 2, 2013
In a federal plea agreement, words matter.
And the language in the plea deal unsealed last week in the ongoing probe of a diesel fuel rebate rip-off conspiracy at Pilot Flying J suggests prosecutors are positioning a young account representative — Ashley Judd — to be a star witness.
Judd pleaded guilty last week in U.S. District Court to conspiracy to commit mail fraud by sending out rebate checks to Pilot trucking company customers that she knew undercut the actual amount owed. A regional sales director, Arnold "Arnie" Ralenkotter, also pleaded guilty to conspiracy to commit mail fraud and wire fraud.
They are the first Pilot employees to admit guilt in a rebate scam authorities say dates back to at least 2008. They've also locked in deals designed to reward them for helping the FBI, the IRS Criminal Investigation Division and the U.S. Attorney's Office build a case against higher-ups in the Knoxville-based firm. Two others — a former employee and a regional sales director based in Texas — have been granted immunity for their cooperation.
Court records unsealed so far make clear the upper echelon of Pilot are targets in the investigation, which began a year ago.
CEO Jimmy Haslam, owner of the Cleveland Browns and brother to Gov. Bill Haslam, has denied knowledge of the rebate rip-off scheme. Instead, he has pointed the finger of blame at his sales staff, announcing that he had placed some of them on leave. He won't say who or how many.
Pilot Flying J is owner of more than 600 travel centers across the U.S. and has more than 30,000 employees. It recorded revenues of $29.3 billion in 2011.
Judd interned for Pilot in both high school and college before joining the ranks in 2009. She worked in a cubicle on the third floor of Pilot headquarters on Lonas Drive.
Federal prosecutors David Lewen and Trey Hamilton describe Judd in her plea agreement as an idealist lured by Pilot's promise of integrity who quickly became disillusioned when she learned the firm was ripping off smaller, unsophisticated trucking companies.
They describe Judd as a reluctant participant in the scheme.
That the prosecutors attribute emotions such as idealism, disillusionment and reluctance in a plea agreement is extraordinary. No such language is contained in Ralenkotter's plea deal, nor is it found in the hundreds of plea agreements filed in federal court each year.
So why the kid gloves for Judd?
Court records show Judd not only provided agents with a handwritten spreadsheet of fraudulent rebates she handled but served as an evidentiary tour guide when agents raided Pilot headquarters April 15.
"Judd voluntarily cooperated and voluntarily assisted the agents in conducting the search in identifying materials within the scope of the search warrant," the prosecutors wrote.
Judd had questioned the rebate rip-offs before but was told by other sales staff that she needed to go along to get along, so she did, the prosecutors wrote. Against orders, however, she kept a detailed spreadsheet of the fraudulent rebates ordered up by the sales staff for whom she worked.
But in March, Judd was growing increasingly antsy — as were Pilot executives, according to an affidavit filed by FBI Agent Robert Root after the raid. That is borne out in a chat the sales director-turned-informant secretly recorded.
"Judd told (the informant) that if anyone ever came in the office that file (her handwritten spreadsheet) would be the first one that Judd would bum," Root wrote.
That same month, Haslam and sales director John Freeman told Ralenkotter the firm needed to review all its rebate amounts, according to the affidavit. The pair didn't say why.
It was Freeman who earlier had gotten caught stiffing trucking company Western Express of a cool million and was forced to buy — with Haslam's knowledge — a broken-down plane from the victimized firm to make up for the rebate robbery, Root wrote.
By April 1, Pilot Chief Financial Officer Mitch Steenrod and Pilot general counsel Kristen Seabrook were ordering the sales staff to prepare spreadsheets showing the rebates actually paid and the figures actually owed, the affidavit stated. Steenrod's son-in-law, Jonathan Duvall, was on the sales staff and, according to the affidavit, regularly made secret cuts to rebates owed his customers.
It's not clear from the affidavit why Pilot's top managers began what appears to be an internal audit of its rebates. In a secretly recorded conversation, Pilot account representative Karen Crutchman theorized they were worried about their financial liability should the scam be uncovered.
"Whew," Crutchman said of the potential figure. "I mean, high margin month, I mean, think about it, I mean, people's cut is probably ten, twenty, thirty thousand dollars some of them. Some of them even more than that."
Haslam himself has estimated 250 trucking companies may have been ripped off. More than a half-dozen proposed class-action lawsuits have been filed against Pilot so far.
Haslam, President Mark Hazelwood and other Pilot executives have hired some of the state's best white-collar criminal defense attorneys.