As the dust settles on the FBI raid of the Knoxville headquarters of Pilot Flying J, the nation's largest truck stop chain, the long wait for the legal fallout has begun.
Laptops have been confiscated by federal agents, secretly recorded conversations have been made public and Pilot Flying J CEO Jimmy Haslam III, who is the brother of Gov. Bill Haslam, has held three somber press conferences conferences trying to reassure his customers and the public about the integrity of his company.
The case has captivated the local legal community, white-collar crime experts from across the country, professional football fans and the multi-billion-dollar trucking industry. But there can be a lag time of months or even years between an FBI raid on corporate offices and potential criminal charges. That means the most pressing questions regarding the federal investigation of Pilot Flying J may not be answered for quite some time.
Which sales executives, if any, will be indicted for their role in an alleged scheme to defraud trucking companies out of millions of dollars in diesel fuel rebates? How high up the Pilot executive ladder did the rebate scheme go? And what will the federal investigation mean for billionaire Tennessee heavyweight and Cleveland Browns owner Jimmy Haslam?
"It's something everybody here is talking about," said Gerard Martin, a Baltimore attorney and former federal prosecutor.
When news broke that FBI and IRS agents had raided the Pilot headquarters on April 15, observers quickly began to wonder as to the focus of the investigation. The government was under no obligation, experts say, to release the details of its investigation to the public. Investigators could have built their case and waited until charges were filed to break the news to the public.
But the day after the raid, Haslam held a press conference and said he thought the investigation was about fuel rebates that some trucking companies thought they were owed. He downplayed the issue and said it involved an "insignificant" number of customers.
The press conference created a public relations game that scored the first point for Pilot.
Then, in a highly unusual move, the FBI and U.S. Attorney for the Eastern District of Tennessee Bill Killian made the choice to unseal the affidavit for the search warrant of the Pilot headquarters.
The affidavit painted an embarrassing picture of vulgar, foul-mouthed Pilot sales staffers, who unscrupulously singled out "unsophisticated" trucking companies they believed would not notice that their full rebates were not being paid out. Under the program, trucking companies receive rebates based on the volume of fuel they purchase from a Pilot or Flying J truck stop.
Most of the rebates are calculated electronically by computer software, but some were manually calculated by sales executives. According to the affidavit, some executives would intervene before a rebate check was mailed out and reduce the payment actually owed to the customer. The practice was so widespread that national sales director Brian Mosher allegedly gave a workshop to other sales staffers on how to execute the scheme.
But while the affidavit gave a public relations hit to Pilot - Haslam called the details contained in the 120-page document embarrassing - it was not necessary for the government to make the affidavit public. In fact, Nashville attorney Jerry Martin, who recently resigned as the U.S. Attorney for the Middle District of Tennessee so he could enter private practice, said Pilot's attorneys now have a head start on investigating and possibly building a defense against the government's case.
"The unsealing of the affidavit at this early stage in an investigation is unusual. I can't think of any tactical advantage the government gets by doing it," Martin said.
On the other hand, another former federal prosecutor said the move to unseal the affidavit demonstrated confidence by the government in its case against Pilot.
S. Benjamin Bryant, a former West Virginia federal prosecutor, said the fact that such a detailed affidavit was filed indicates prosecutors "have a very comprehensive collection of evidence."
"It shows they are not concerned about the subjects of the investigation knowing what the evidence is," he said. "It suggests they are very comfortable with the evidence."
Possible criminal charges
Legal experts who have studied the case say it is too soon to know what or when criminal charges could come.
In a different customer fraud case that got widespread attention in Nashville, it took about 20 months after an FBI raid for charges to be filed. In that case, federal agents raided the Williamson County headquarters of the Sommet Group in 2009, but it wasn't until early 2012 that the top executive and his wife and his father-in-law were charged.
Mosher and vice president of sales John Freeman were the two sales executives perhaps singled out more than others. Haslam announced that some sales staffers were put on administrative leave, but he didn't identify who they were last week.
The affidavit listed wire fraud, mail fraud and conspiracy to commit fraud as the possible crimes. Mail fraud is punishable by up to 30 years in prison, wire fraud by up to 20 years and conspiracy to commit fraud carries a possible sentence of five years.
"Federal investigations are of course about as serious as it gets for any individual or corporation," Martin said. "It is way to early to speculate about the outcome because, remember, no charges have been filed. The government won't do that until it believes it has evidence necessary to support any specific charges."
Considering his position as a professional sports owner, a top Republican fundraiser and his family ties to the top of state government, Jimmy Haslam III remains the most compelling character in the legal drama. He met Wednesday with NFL Commissioner Roger Goodell.
Gerard Martin, a Baltimore attorney and former federal prosecutor, said he and some of his colleagues have been speculating about the possibility that the investigation could lead to a forfeiture order that could give the federal government control of the Cleveland Browns.
Gerard Martin said the affidavit made public in the Pilot investigation indicates that the potential criminal charges against Jimmy Haslam, if proven true, could well lead to a forfeiture order on Haslam's assets, including his ownership interest in the Cleveland football franchise.
"We've been wondering out loud about that possibility," Gerard Martin said. "It could lead to a freeze on all his assets," Gerard Martin said, adding that forfeitures "can be deadly."
He said the use of forfeiture orders was initially tied primarily to drug cases, but has recently expanded to a wide variety of other cases including those involving mail fraud, wire fraud and money laundering.
While individual executives could face criminal charges, it is not unusual for the government to pursue criminal charges against an entire company. Such a move would subject Pilot to possible fines and civil penalties.
Mark Cohen, professor of management and law at Vanderbilt said that if the allegations turn out to be true, the company itself could be criminally charged and could face substantial fines and restitution orders.
But Cohen said that the company's liability could be limited if it had procedures and policies in place forbidding the actions described in the affidavit.
Even if company policies barred such schemes, it could still be charged.
"There are plenty of cases where that has happened," Cohen added, adding that companies not only need to have the correct policies, but procedures in place to enforce those policies.
"Did they have a whistleblower policy? Did they perform audits? Those are factors that a court would consider," Cohen said.
He said actions taken by the company to correct any wrongdoing could mitigate the amount of penalties a court would impose.
Comparisons to HCA
Perhaps the most prominent instance of corporate fraud was the 1997 case against HCA/Columbia, the nation's largest health care company. That case, which also began with a federal raid of the HCA corporate offices, ended in the largest fraud settlement in U.S. history of $2 billion.
While investigators focused on HCA CEO Rick Scott, no criminal charges were ultimately filed against him. That didn't stop one former federal prosecutor from heaping blame on Scott, who resigned after the investigation but is now governor of Florida.
In 2010 former assistant U.S. Attorney A.G. Alexander III filmed a political ad blaming Scott for the fraud.
"Companies he created, owned, invested in or controlled systematically defrauded taxpayers," Alexander said of Scott during the 2010 ad. "Rick Scott claims he didn't know. Well the facts and the timeline say different."
While Scott escaped criminal charges, four HCA executives did face criminal charges.
Jerry Martin, the former U.S. Attorney, said that when his office investigated corporate fraud during his stint as the area's top federal prosecutor, it paid close attention to how a company responded once it knew of wrongdoing. Martin was complimentary of Pilot's response since the investigation became public, especially taking efforts to reach out to companies that might have be shorted on their rebate payments because of the scheme.
"When I was U.S. Attorney, we investigated a lot of health care companies," he said. "Those companies almost always had vigorous compliance programs and were undoubtedly full of ethical, honest people. What mattered to me was how the company responded when a problem was exposed. If they wanted to get to the bottom of it and fix it, then that goes a long way. That certainly seems to be the posture of Pilot's leadership now."
By: Nate Rau and Walter F. Roche Jr., The Tennessean
Contact Nate Rau at 615-259-8094 or email@example.com. Follow him on Twitter @tnnaterau. Contact Walter F. Roche Jr. at 615-259-8086 or firstname.lastname@example.org.