UPDATE: For a second look on the PFJ saga, after release of the search warrant affidavits, see Cleveland Schadenfreude post.
The FBI and IRS locked down Jimmy Haslam’s Pilot Flying J headquarters Monday in the service of court ordered search warrants; a second warrant was executed on another building Tuesday. (Update: it was a total of four warrants; one for each Knoxville building. One of the buildings housed their data center.) The reason for the extraordinary use of force to obtain evidence is unknown other than that it pertains to a criminal investigation.
I’ve worked enterprise-sized accounts for a high tech company for decades. Outside of the financial service industry, I’ve never heard of this happening. The ones I’ve heard of: AIG, Lehman, Enron.. I don’t have to tell you how it turned out for them.
I let my conspiratorial side fly over on Frowns’ forum yesterday. Why not? It’s mock draft season; the time for conjecture on subjects we’re barely qualified to talk about but do so anyway and with gusto. There have been quite a few oddities with the Haslam acquisition of the Browns and his short tenure as owner; I let fly with most every misgiving that has crossed my mind. (Obligatory caveats of ‘this is speculation’ and ‘it’s early’ apply.)
* What kind of NFL owner/billionaire needs to purchase a team on an installment plan? Lerner still holds 30% of the team and in 2016 Haslam needs to come up with $315,000,000 to complete the purchase. I always thought that deal was squirrely; that’s a hell of a balloon payment.
* You don’t buy a home in Bratenahl and six months later decide that you really want to ‘take care of your first love’ in Knoxville. You just don’t. Moreover, I have a problem with people who offer jive explanations like that and assume the audience will buy it on face value. In addition to being a preposterous statement, the very making of it indicates a person who’s been insulated with yes-men for far too long.
* Browns salary cap now 31st in league. Under NFL cap rules, you can take this headroom with you, but just for one year and only on new players. –Or– you take the leftover cash and put it in your pocket. I think it’s not out of the question that this (plus the installment purchase plan) (plus IRS-related shenanigans) could indicate a cash flow problem. He wouldn’t be the first NFL owner with inadequate cash on hand to run his operations in spite of a strong paper net worth. Could be that we’re under the cap because Haslam simply needs the dough?
* Haslam sold his 12.5% stake in the Steelers last week. It seems very coincidental that the raid on his HQ took place roughly two business days after closing. Maybe now the feds figure that Haslam has the cash equivalent of 12.5% of the Steelers in his bank account this week (at least $125,000,000) and thus now is the time to start serving warrants and freezing assets.
These are items that I’ve thought and wanted to get expressed. But today I want to explore what on the wide wide world of sports could be the nature of a criminal investigation that prompts three law enforcement agencies to don combat-gear and attack the sixth largest privately-held American business’ headquarters. We’re talking about dozens of armed men entering a business and ordering 1600 employees to turn off their cell phones, power down their computers, and leave the building.
That shyte does not happen over the insignificant application of rebates and we might not even be writing this blog post today if Haslam hadn’t suggested such a ludicrous reason for the raid. Which brings us to our first point.
WHO THE HELL HOLDS A PRESS CONFERENCE TO DISCUSS THEIR ON-GOING FBI/IRS INVESTIGATIONS?
This ties back to the apparently way-too-insular world Haslam seems to have been in for way too long. Was there no advisor at the conference table yesterday to tell Haslam, before his press conference: “Yes, Jimmy, you’re a smart guy. Yes Jimmy you’re a great leader, the face of PFJ. But there is no good to be done by discussing your company’s criminal investigation by the FBI/IRS. There is only risk. Don’t do it.”
But Jimmy came out and finessed the questions from local media. Set the stage for throwing some sales guys under the bus. Here’s how he explained Monday’s remarkable raid yesterday:
“It appears to be centered on a very insignificant number of customers and the application of rebates — that the rebates owed to the customers were not paid,” CEO Jimmy Haslam said at a short news conference Tuesday.
“We of course disagree with that. It does not involve any tax issues. To my knowledge, there was no evasion of state or federal taxes involved.”
I ask you: if you’re an FBI or IRS investigator and you read Haslam’s jive spin that includes the word ‘insignificant’ in relation to your investigation, will you be:
a. more likely or,
b. less likely
to want to nail this d-bag’s balls to the wall? Haslam just called you out. You don’t need to be a wordpress.com blogger to figure out the response from the FBI/IRS:
Very insignificant Jimmy? We’ll see about that.
Criminal investigation of… “application of rebates to a small group of PFJ trucking company customers.” ?!
There have been reports that the probable cause behind a judge’s issuing of search warrants centers on rebates. The FBI needs to show probable cause to a judge in order to get a warrant; perhaps ‘rebate’ was the lowest hanging fruit. But once the FBI is culling through your emails looking for malfeasance of rebate application.. everything is fair game.
- A simple customer rebate issue or dispute would be a civil issue and not criminal, the FBI does not get involved in civil matters as they are a criminal investigative division. This quick cover our butt answer is for those who don’t know the difference between civil and criminal.
- Price gouging, tax fraud and attempt to bribe a federal official will be added soon. I heard from several employees at Pilot/Flying J head quarters that Jimmy offered a payout to the FBI to get out. Guess we will see if it worked or not. The local businesses have been getting the shaft from the Haslems for years its about time someone pays them back.
- I wouldn’t jump to cooking the books. It’s common knowledge that that pilot is used for prostitution. I’m thinking more like money laundering.
- I’ve worked for Pilot and one of their business partners. I met Bill, Big Jim, Jimmy and they could care less about the people that actually work for them. All they care about is how the general public perceives them and the money they make. Sure they’ll smile and talk to you. But you can always see that little “I’m better than you” sneer lurking just beneath the facade they put on.
- Does a wild Bear use a Port-a-Potty ? Nope. And the FBI and IRS does not close the HQ and serve 2 search warrants for a small number of unpaid rebates. If they did Best Buy and a lot of other companies would be raided daily. Jimmy has some real splainin’ to do and not this smoke and mirror show.
Not the first brush with government oversight.
PFJ was forced to pay fines for price gouging in 2008.
Pilot Corporation, which Haslam co-owns with family members, was forced to pay fines and penalties for its actions against consumers when it violated the Tennessee Consumer Protection Act by overcharging for gasoline at prices up to $4.99 a gallon over a three-day period following Hurricane Ike in late 2008.
The Tennessee attorney general sued Pilot Corporation and its subsidiary, Pilot Travel Centers, to force the company to stop raising gas prices and restricting its supply during that crisis. The court later ordered the company to repay every customer who was overcharged at its gas stations and fined Pilot thousands of dollars for its illegal behavior against Tennessee motorists.
Pilot Oil was also caught price gouging its customers at travel centers in Georgia and Kentucky during the same period, and the company was again forced to reimburse consumers and pay court-ordered fines – $100,000 in Kentucky alone – for its actions.
Tough business and PFJ has played tough in the past.
Maybe there is a reason ExxonMobil hasn’t gone after the truck stop market segment.
PFJ did $29 billion in revenue last year. Why wouldn’t ExxonMobil or Shell be all over that? Well you don’t have to dig too far to learn that this is a nasty business.
Start with the numbers: Forbes reports income of $635M against revenue of $29.1B. Are you kidding me?? That is a 2.2% margin. Hell… that in and of itself might get you on the IRS’ radar. That income appears to be vastly under-reported and we are dealing with a cash business here.
But then, there’s also — truck stops can be just seedy, crime-ridden places and those transacting the crimes may or may not be consenting or adult. Quick look at the FBI.gov site and search on truck stops yields:
06/25/12 In the continuing effort to address the national problem of child sex trafficking, the FBI and our partners today announced the results of a three-day law enforcement action in which 79 child victims of prostitution were recovered and more than 100 pimps were arrested. … Operation Cross Country national sweeps usually grow out of local law enforcement actions—officers and other task force members target places of prostitution such as truck stops, casinos, street “tracks,” and Internet websites.
Locations, such as truck stops, strip clubs, massage parlors, and cheap motels, are havens for prostitutes forced into sex trafficking.
We’re talking about truck stops. It’s right there in the same category with strip clubs and massage parlors as ‘haven for prostitutes forced into sex trafficking.’ That’s not me, that’s the FBI.
In the past year, the FBI has been actively sweeping truck stops as part of a child sex trafficking study. Is PFJ aware of any such activity on their properties? Have they taken steps to secure their properties? Lest we think PFJ locations are all maintained at a higher standard, we can simply check the Birmingham Flying J foursquare page (see above right). The probability that the worst sorts of exploitation have happened at a PFJ is around 100%. Does PFJ have a pattern of accepting monies from known sex practitioners? If yes, a money laundering case can be made.
Not for nothing: rebates are what broke up the Standard Oil trust.
Clevelander John Rockefeller started using rebate schemes with railroads to effect below-market costs as early as 1872. By 1890, Standard controlled 88% of the refined oil flows in the United States. After new legislation and lengthy lawsuits, in 1909, the US Department of Justice sued Standard under federal anti-trust law, the Sherman Antitrust Act of 1890, for sustaining a monopoly and restraining interstate commerce by:
“Rebates, preferences, and other discriminatory practices in favor of the combination by railroad companies; restraint and monopolization by control of pipe lines, and unfair practices against competing pipe lines; contracts with competitors in restraint of trade; unfair methods of competition, such as local price cutting at the points where necessary to suppress competition; [and] espionage of the business of competitors, the operation of bogus independent companies, and payment of rebates on oil, with the like intent.”
In 1911 Standard Oil was broken up. Of course the effect of this was to enrich Rockefeller even more through his ownership of the baby Standards.
Point is: let’s not discount the rebate angle of this as insignificant. If you’re offering price A to your consumers, but big customers are getting price-A-less-rebate, then how is a small firm supposed to compete? Are there kickbacks paid from the large trucking firms which incent PFJ to screw the small trucking companies?
No… monopolistic rebate practices which screw small companies… this rebate deal is probably not as insignificant as Jimmy would have you believe.
So what do you think Kanick?
I remain stunned by the incredibly surreal picture of dozens of armed federal agents descending onto the corporate headquarters of a $29B business and shutting it down for a day.
IT. JUST. DOESNT. HAPPEN.
I see that such things as rebates are being discussed and I find the operating income ratio ridiculous and indicative of under-reporting. It’s likely ‘just white collar crime.’
But I can’t shake that the harsh nature of the raid displayed such a lack of respect for the company and employees and that this treatment is reserved for more serious crimes. There are 650 PFJ properties and they’re dealing with graveyard shifts and they’ve got a rough target demographic. It’s not a huge leap to think this could be more than shorting a couple trucking firms on their diesel rebates.
But let me throw it back at you: what do you think? Here’s a poll and I’ll also keep it up in the right sidebar. I’m sorry in advance if you think any of the options look too outlandish. But I repeat, raids as conducted on Monday just don’t happen. Everything is on the table.