On Monday afternoon, four defendants, accompanied by a phalanx of expensive defense lawyers, filed into the courtroom on the third floor of the Joel W. Solomon Federal Courthouse in downtown Chattanooga. Mark Hazelwood, the former Executive VP and President of Pilot Flying J, Scott Wombold, VP of National Accounts, and Karen Mann and Heather Jones, both inside sales representatives, faced multiple charges related to their alleged scheme to defraud trucking companies of the rebates they were owed on diesel fuel purchased at Pilot Flying J truck stops.
Two young prosecutors from the U.S. Attorney’s Office in Knoxville were there to greet them—F. M. “Trey” Hamilton III and David P. Lewen represented the federal government. Hamilton specializes in white collar criminal cases, while Lewen cut his teeth on gang-related conspiracies. Both have excellent reputations.
It was Lewen’s show on Monday afternoon as he presented the prosecution’s opening statements in the trial, giving the jury an outline of the kinds of evidence they would see in the coming weeks. Lewen referred to a PowerPoint presentation displayed on the courtroom’s monitors as he took the jurors through the alleged conspiracy, how it worked, who directed it, who executed it, and what the motive was.
“This is a scheme to defraud,” Lewen said. “And all schemes to defraud involve three things: lying, cheating, and stealing.” Pointing at defendants Hazelwood, Wombold, Mann, and Jones from across the room, Lewen asserted that “They did it so they could put those extra dollars in their pockets.”
Lewen promised the jurors secret recordings of “direct sales meetings where defrauding customers was openly discussed and bragged about” made by FBI informants wearing wires, and referred to previous defendants in the same conspiracy who had already plead guilty, giving the dramatic proceedings a feeling of the beginning of the end. Hazelwood in particular appeared exhausted, slumped in his chair with a hangdog expression on his face.
One of those recordings, made in October 2012, was of a meeting of executives planning for Pilot Flying J’s annual November Sales Meeting. The huddle took place at John Freeman’s lakehouse in Rockwood, TN—Freeman, Pilot Flying J’s former VP of sales, pleaded guilty to wire and mail fraud in September.
The government alleges that the direct sales division of Pilot Flying J systematically trained their sales representatives to identify and prey upon smaller, “unsophisticated” trucking companies that would be vulnerable to a scam. “When these defendants saw a trusting customer,” Lewen told the jury, “they also saw a mark to be cheated.” Lewen quoted a February 2013 recording of Hazelwood, the former president of the company, that Lewen said showed how contemptuously Hazelwood viewed the small carriers he allegedly chose as victims: “Customer A, Customer B. Customer A looks into every orifice you have; Customer B doesn’t even know you have an orifice.”
The prosecutors allege that Pilot Flying J direct sales personnel promised generous rebates to those trucking companies and then charged them higher prices, which they covered up with fraudulent invoices and reports. According to the government, the extra profits padded the wallets of direct sales employees, including Hazelwood, whose deferred compensation package entitled him to 3.5% of Pilot Flying J’s net profits. “Hazelwood stood to benefit from every drop of fraudulently procured diesel fuel, coast to coast, in this conspiracy,” said Lewen.
Pilot, the largest operator of truck stops nationwide, ultimately paid a $92M settlement to 5,500 trucking customers because of the rebate scandal.
In his opening statements, Lewen painted the full narrative of how the government thinks the fraud was hatched, expanded, and then how things began to get complicated for the defendants once federal investigators got on their trail. “A tangled web gets weaved,” Lewen told the jury, “and these conspirators had a hard time keeping their lies straight.”
Some of the charges faced by the defendants in court on Monday related to their alleged conduct during the investigation of the fraud conspiracy. Scott Wombold allegedly gave false statements on three separate occasions to FBI and IRS agents after agreeing to be interviewed by them, and Mark Hazelwood faces accusations that he told his longtime executive assistant to lie about trip reports that contained damaging details of the fraud perpetrated by the regional sales directors and outside sales representatives under his authority.
Lewen called the alleged conspiracy “one giant bait and switch… it boils down to greed and power.”
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