September 1, 2014

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Jimmy Haslam ‘embarrassed’ by FBI documents, announces Pilot Flying J’s plan moving forward (updated with statement)

Browns owner Jimmy Haslam announced a five-step reponse this afternoon in Knoxville, Tenn., as Pilot Flying J is in the midst of an investigation by the FBI and IRS.

Haslam is CEO of Pilot Flying J, the nation’s largest owner of truck stops. Its headquarters in Knoxville were raided April 15.

Haslam talked for about 10 minutes, then left without answering questions. He wasn’t as defiant and didn’t deny wrongdoing as he had in meetings with the media last week.

He called the situation the most painful time in his career at Pilot Flying J, which was founded by his father in 1958.

“I don’t think I’ve ever been that embarrassed,” he said of reading a 120-page document unsealed Thursday by the FBI that alleges Haslam knew about a fraud committed by top sales officials to take money from unsophisticated trucking companies. “We don’t talk and act that way. There is no excuse for that kind of behavior.”

The five-part plan to address the issues raised by the investigation:

1)      Pilot Flying J will launch an internal audit that examines the direct billing process and any place where customers could be overcharged. He expects it to take 4-8 weeks.

2)      Several members of the direct sales team were placed on administrative leave.

3)      Pilot will discontinue its manual transaction program, where much of the alleged fraud took place.

4)      He will appoint a chief compliance officer.

5)      A well-known outside investigator has been hired to examine the company. The name will be announced in the coming days.

“I, more than anybody, understand the damage that’s been done to our reputation, our brand and our relationship in the trucking community,” he said. “Eight days ago I think we had the best relationships, the best trust in the trucking industry and we now have the worst. I understand that, I accept responsibility for it and we’re going to work to rebuild those relationships. I understand we have a long way to go, we’re approaching it very humbly, hat in hand and we’ll do what we can over a period of time to regain the trust of the trucking companies.”

Haslam didn’t address the Browns or Cleveland.

Here’s the statement released by Flying J:

Thanks again for coming out today.

 

I want to continue to keep you informed of current events here at Pilot Flying J.

 

As was the case last week, as much as I would like to, I will not be able to take questions because of the ongoing federal investigation.  I hope I will answer most of your questions in my remarks.

 

It still appears to us, based on all we know at this time, that this federal investigation is focused on a narrow slice of our business in which rebates on diesel fuel purchases are manually calculated and paid to a relatively small number of our 3,300 trucking company customers.

 

We are continuing to cooperate appropriately with investigators, but we are determined to understand on our own the questions they are asking and to do everything we can to make sure we are never in this position again.

 

To that end, I’m announcing today five steps that we taking to address the issues raised by the investigation.  I’m going to take them one by one.

 

1)  Immediately, we are bringing our field audit team to Knoxville to review all 3,300 contracts with our trucking company customers, not just the relative few implied in the federal affidavit, and to proactively address any miscalculations that we may find.

 

Our goal is to understand the entirety of that part of our business, not just the manually processed contracts.  If we find an underpayment, we will encourage the affected customer to review our finding, test with their own audit if they like, and if we owe them money, we will write them a check immediately.

 

We will be communicating this plan directly to our trucking company customers and moving through this process as quickly as possible.  I hope this process won’t take more than fourto eight weeks, but the important thing is that we get it right.

 

I’ve already spoken personally to several of our customers, including Curt Morehouse with Morehouse Trucking and Tommy Hodges with Titan.  We are working with Curt to reconcile his account, and I will be going to Tommy on Wednesday.

 

2)  Yesterday, we placed on administrative leave several members of our diesel fuel sales team and, on an interim basis, we are restructuring that team pending further investigation to get control of that operation and restore confidence to our customers.

 

Placing members of our team on leave is very painful.  For years, we have been a trusting, proud family here at Pilot Flying J focused on providing honest, forthright servicesto our customers.  We have had relatively few personnel issues, but we cannot ignore the content of the federal affidavit released last Thursday evening.

 

We are not judging the guilt or innocence of the team members placed on administrative leave. We are addressing actions and words that fail to show proper respect to our customers and that violate the character, values and principles that have been core to this company since it was founded 54 years ago.

 

As a private company, we have dealt with these members privately and will not release their names publicly.

 

3)  I have directed that all of our diesel fuel customers be converted to electronic calculation and payment eliminating future risks of any abuse that might be enabled by manual calculation and payment.

 

This process will fully eliminate manual processing at Pilot Flying J and place all of our customers on electronic direct bill.  I expect this process to be completed by June30.

 

4)  I have asked our outside counsel to help us create and staff a position of Chief Compliance Officer to report to the company’s general counsel to deal with any similar questions or issues that might come up in the future.

 

The establishment of a position of Chief Compliance Officer is important, because had we had one before, perhaps some team member would have raised a question about manual rebates internally before anyone would ever have gone to federal investigators.

 

If we had discovered any irregularities on our own, we would have fixed them on our own.  That would have been good business, and it would have been the Pilot Flying J way – always do what is right first.

 

I expect this person to be on the job within 30 days.

 

5)  Lastly but very important, our board, in a special meeting yesterday, voted to hire an Independent Special Investigator to oversee and validate all of our internal inquiries related to the federal investigation.

 

Because there is a federal investigation now, we have to take extraordinary steps to do whatever is necessary to repair any damage done to this company’s reputation and restore the full integrity on which this company was built.

 

We will find the best person in America to come into this situation and oversee and make certain that any and all of our own investigations into these matters are thorough and correct and help us ensure that what happened to this company last week never happens again.

 

I expect this person to be on the job within 30 days.

 

We know this process is going to be difficult and probably will last for a while, but we are not going to sit by idly in the meantime.  We are going to diligently and aggressively figure out for ourselves what’s going on, and if we find anything amiss, we are going to make it straight right away.

 

In closing, we have received tons of expressions of support from our friends here in Knoxville and Cleveland, our customers, our suppliers and vendors, and I cannot tell you how much that means to our family and our team members at Pilot Flying J.

 

Last week was very tough, and it’s not over, but we are back to business as usual, we are dealing aggressively with this situation, and we all believe we will come out of this adversity stronger than ever as individuals and as a company.

 

Thank you very much.

Contact Scott Petrak at 329-7253 or spetrak@chroniclet.com. Like him on Facebook and follow him on Twitter.