Even as Pilot Flying J inked a deal to admit criminal responsibility in a scheme to defraud its trucking customers, the truck stop giant was paying its former president — and now convicted leader of the fraud plot — millions, testimony Friday showed.
Assistant U.S. Attorney Trey Hamilton revealed at a hearing in U.S. District Court in Knoxville Friday that Pilot Flying J has paid former President Mark Hazelwood $34 million since October 2014 — just months after the nation's largest diesel fuel retailer entered a criminal enforcement agreement in the five-year scheme to cheat trucking companies of promised discounts on diesel fuel purchases.
The firm will pay Hazelwood another $6 million in May — one month before he faces sentencing on conspiracy to commit wire and mail fraud, wire fraud and witness tampering convictions handed down by a jury on Thursday in U.S. District Court in Chattanooga in connection with the fraud plot.
That $40 million equals more than half of the $56.5 million Pilot Flying J has admitted was stolen from its customers via the fraud scheme. The truck stop giant's board also has been picking up his defense tab in the case. It has paid $92 million in criminal penalties and another $85 million in lawsuit settlements.
Pilot Flying J issued a statement within minutes of the conclusion of Friday's hearing about those payments to Hazelwood.
“When Mr. Hazelwood was separated from the Company, he received payments due pursuant to his pre-existing employment agreement," the statement read.
Testimony at the trial of Hazelwood and three former subordinates showed Hazelwood was "released" from Pilot Flying J in May 2014 after the firm discovered he had been secretly recorded making racial slurs and using racial epithets at a meeting with subordinate sales executives in October 2012.
House arrest ordered
Hazelwood was in court Friday for a detention hearing after Hamilton and fellow prosecutor David Lewen made a rare request to jail him pending a June 27 sentencing hearing. White-collar defendants are rarely locked up pending sentencing.
Hamilton used the $40 million payments to Hazelwood by Pilot Flying J as proof the former president has both the means and motive to go on the lam.
"At this point, the defendant has been convicted of (three) felonies," Hamilton said, adding Hazelwood now faces a penalty range of 14 to just more than 21 years in prison.
He owns a jet, a half dozen businesses, four homes in three states and a timeshare in Italy, Hamilton said.
"The United States does not believe there can be any combination of conditions that could ensure his presence (at sentencing)," Hamilton said.
Hazelwood's lead defense attorney, Rusty Hardin, countered with testimony from Hazelwood's pilot that the jet could be disabled to prevent anyone from flying it and argued Hazelwood has been allowed to remain free since he was indicted in the case in 2016.
"Not once has he failed to appear and follow the conditions of his bail," Hardin said.
U.S. Magistrate Judge Bruce Guyton said the stakes for Hazelwood are much higher now that he has been convicted.
"The court is going to find Mr. Hazelwood is a risk of flight," Guyton said. "He has substantial means and the ability to flee."
But Guyton opted for house arrest in lieu of jail, ordering Hazelwood to remain at his home on Cherokee Boulevard and wear an electronic monitoring device. Guyton ordered his jet disabled and his West Knoxville home used as security on a bond.
"In layman's terms," Guyton said, "Mr. Hazelwood will be required to put up his house to secure his appearance."
Convictions and acquittals
Hazelwood was convicted Thursday of conspiring with the Pilot Flying J sales executives who worked under his supervision to convince trucking companies to switch their business to the truck stop giant in return for discounts on diesel fuel they never intended to fully pay.
The same U.S. District Court jury also deemed him guilty of witness tampering and fraud.
Hazelwood, former Pilot Flying J vice president Scott "Scooter" Wombold and former account representatives Heather Jones and Karen Mann had been standing trial in U.S. District Court in Chattanooga since November in connection with a five-year scheme within the truck stop giant's direct sales division to defraud truckers.
The jury on Thursday acquitted Wombold of the conspiracy charge but convicted him of fraud. Mann was acquitted of the sole count of conspiracy she faced. The jury convicted Jones in the conspiracy but acquitted her of lesser fraud charges.
Fourteen former Pilot Flying J sales executives and staffers have pleaded guilty in the conspiracy. Two more were granted immunity.
Chief Executive Officer Jimmy Haslam, who owns the Cleveland Browns, has denied knowledge of the scheme and is not charged.