Don’t feel guilty about shorting customers on rebates, Pilot Flying J executives preached to sales staffers: They deserve it.
“Some of ‘em don’t even know what a spreadsheet is,” Brian Mosher, Pilot director of national sales, told a group of sales reps at a November 2012 training session. “I’ve made my peace with it. ... (The average trucking customer) doesn’t know what cost-plus pricing means, and he’s not going to take the time to find out. He’s lazy. He doesn’t deserve (a rebate).”
Mosher’s boss, Scott Wombold, sat in the meeting that day, former sales rep Janet Welch testified Wednesday in U.S. District Court. He listened to Mosher’s words again as federal prosecutors played the tape recorded by an undercover informant at the meeting, this time before a jury.
Wombold, Pilot’s former vice president of national sales, along with former Pilot president Mark Hazelwood and former sales reps Karen Mann and Heather Jones, are standing trial on charges of conspiracy to commit wire and mail fraud in what prosecutors describe as a multimillion-dollar plot to cheat trucking companies across the nation out of promised diesel rebates.
Wombold faces additional charges of lying to agents with the FBI and IRS Criminal Investigation Division. Hazelwood is also accused of witness tampering.
Testimony in the case began this week. Welch and Mosher have already pleaded guilty to their roles in the scheme.
The fraud depended on an arrangement known as “cost-plus,” in which clients would be promised a rate based on wholesale fuel cost plus a pumping fee, usually of a few cents per gallon. Between wholesale costs that fluctuated daily and the various state and local gas taxes, most customers couldn’t keep up to verify they got the deal promised.
“That’s the beauty of it,” Mosher said on the tape. “It’s index-based pricing, and it changes every day.”
Customers might be promised a price of cost-plus 3 cents, pay twice that amount and never know it. Sales reps calculated the figures themselves, a process known as the manual rebate.
But keeping the lies straight made for a headache, Welch testified.
“We could make the rebate whatever we wanted it to be,” she said. “But you wanted to keep up with the information you were sending the customer, because you could get caught.”
Prosecutors say the scheme began as early as 2007. Using Welch’s emails, Hamilton showed the nation’s largest diesel fuel retailer changed its manual in 2008 to formally set up a plan to offer discounts to trucking firms that shifted business away from competitors.
On cross-examination, Welch said she never heard Wombold specifically tell anyone to cheat a customer.
“Manual rebates themselves were not necessarily a fraudulent thing, were they?” Wombold’s attorney, Eli Richardson, asked.
“Some of them aren’t,” Welch said. “The majority were fraudulently calculated.”
Pilot Flying J’s board of directors has admitted responsibility for the fraud via a criminal enforcement agreement in which the firm agreed to pay out $92 million as punishment. The board also paid out $85 million to settle related lawsuits and is paying the defense tab for Hazelwood and the three others.
Hazelwood and Wombold insist they didn’t know about the fraud and didn’t participate. Jones and Mann say they just followed orders and did their jobs.