Prosecutors leery of judge-ordered guilt ranking

Faced with a judge’s unusual order to rank by degrees of guilt the culprits in a scheme to rip off trucking customers of the largest diesel fuel retailer in the U.S., federal prosecutors instead are using power level as their gauge.

U.S. District Judge Curtis L. Collier last week ordered federal prosecutors Trey Hamilton and David Lewen to rank — from most guilty to least — the 17 former executives and staffers of Pilot Flying J facing sentencing in a plot to grow the market share and profits of the truck stop giant by promising trucking firms diesel fuel discounts they never intended to pay in full.

Judges in the Eastern District rarely order prosecutors to compile a ranking of co-conspirators. It is the job of the U.S. Probation Office — not prosecutors — to weigh a co-conspirator’s role when establishing a penalty range dictated by sentencing guidelines prior to sentencing.

The prosecution and defense have the right to challenge those calculations, including assessments on the culpability level of each defendant in a conspiracy case. Federal law ultimately leaves sentencing decisions, including guilt level, up to the judge.

In an equally rare move, Hamilton revealed in a response filed in U.S. District Court that Collier’s order prompted “discussions” between the two prosecutors and “some defense counsel” about the legal pitfalls of allowing a pre-sentencing ranking by the prosecution.

To avoid creating legal error that might lead an appellate court to order a do-over, Hamilton wrote he and Lewen instead decided to divide the fraudsters into groups, using Pilot Flying J’s “corporate structure” as a guide.

At the top of their grouping list: Former Pilot Flying J President Mark Hazelwood.

Hazelwood and ex-regional account representative Heather Jones were convicted in February of conspiring with his subordinates in the direct sales division of the truck stop giant to lure truckers into switching to Pilot Flying J with promises of hefty discounts on diesel fuel and then shortchanging them.

Former vice president Scott “Scooter” Wombold was cleared after that three-month trial in U.S. District Court in Chattanooga of conspiracy charges but deemed guilty of a single act of fraud.

Fourteen other executives and staffers have pleaded guilty. Their sentencing hearings had been put on hold pending the outcome of the trial since many agreed to testify and are seeking lighter punishment because of their cooperation with prosecutors.

Collier wrote in his order he wanted prosecutors to rank each of the fraudsters so he could schedule sentencing hearings “in an orderly and logical manner.” Collier insisted in his order he would not be unduly swayed by the prosecutors’ ranking and would give the defense an opportunity to respond.

But Hamilton noted in his response there are a slew of “factors” that must be weighed in determining each of the co-conspirators’ fates, including whether they confessed and how soon they did so after the April 2013 raid of Pilot Flying J’s Knoxville headquarters and the terms of plea deals struck.

Many of those plea deals include provisions that limit how much of the provable fraud loss — $56.5 million over five years — can be laid at the feet of each of the co-conspirators. Under federal sentencing guidelines, the higher the fraud loss, the higher the potential punishment for the guilty.

Hamilton argued the safest course for the unusual pre-sentencing ranking would be to group defendants based on their level of power within Pilot Flying J. The prosecutors are also urging Collier to sentence Hazelwood, Wombold and Jones first since their decisions to take their cases to trial free up the government to try to hold them accountable for the entirety of the fraud.

“Additionally, the government cannot foresee all of the defenses that the three trial-convicted defendants may raise during sentencing proceedings that might warrant the government’s calling of cooperating co-defendants to testify,” Hamilton wrote.

Among the confessed co-conspirators, Hamilton and Lewen are ranking former vice president John “Stick” Freeman, deemed by many as the architect of the fraud scheme, and former direct sales director Brian Mosher, dubbed the top fraudster among thieving salesmen, at the top of their list of most culpable.

Mosher testified for the government. Prosecutors did not call Freeman as a witness. They have not revealed why.

The prosecutors next rank other supervisors, including direct sales managers Arnie Ralenkotter and Jay Stinnett, above the regional salesmen who were the foot soldiers in the fraud scheme. They list as least culpable the assistants — all women — who took care of the accounting and paperwork in the fraud scheme.

Hamilton wrote that he and Lewen rank as more culpable the supervisors, including Hazelwood, and salesmen captured on secret recordings discussing the fraud scheme at two meetings — one at Freeman’s lake house in Rockwood in October 2012 and another in Orlando, Fla., in February 2013. None of the women attended those meetings.

The fraud scheme was discovered in 2011 when someone tipped the FBI and IRS Criminal Investigation Division that Vincent Greco, then a salesman stationed in Texas, was bragging about it. The identity of the tipster has never been revealed. When confronted, Greco agreed to secretly record interactions with his colleagues.

Pilot Flying J’s board of directors ultimately agreed to confess criminal responsibility for the fraud scheme, paying $92 million in criminal penalties and $85 million in lawsuit settlements. The board is paying Hazelwood’s defense tab and has continued to pay him — for a total of $40 million — even after he was “discharged” in May 2014. The firm is doing so under the terms of Hazelwood’s employment agreement.

Pilot Flying J Chief Executive Officer Jimmy Haslam, who also owns the Cleveland Browns, has denied knowledge of the fraud scheme and is not charged.

Hazelwood, Wombold and Jones are currently set to be sentenced June 27.