Ex Starkey Hearing execs indicted: Secret condo, $119,000 Jaguar, sham companies
MINNEAPOLIS (KMSP) - Three former Starkey Hearing Technologies executives are among five indicted in connection with a conspiracy to steal more than $20 million from the Eden Prairie, Minnesota-based maker of hearing aids. According to the charges, the defendants created sham companies to give themselves consulting fees and forged the signature of Starkey founder Bill Austin cash-in on stock. Among the most salacious allegations is that embezzled money was used to purchase a $119,000 Jaguar and a $200,000 condo to carry out an affair.
The defendants
JERRY RUZICKA, 59, PLYMOUTH, MINN. (FORMER STARKEY PRESIDENT)
Conspiracy to commit mail fraud and wire fraud, 1 count
Mail fraud, 6 counts
Wire fraud, 16 counts
Conspiracy to commit money laundering, 2 counts
Financial transactions involving fraud proceeds, 4 counts
SCOTT NELSON, 58, PRIOR LAKE, MINN. (FORMER STARKEY CHIEF FINANCIAL OFFICER)
Conspiracy to commit mail fraud and wire fraud, 1 count
Mail fraud, 2 counts
Wire fraud, 2 counts
Financial transactions involving fraud proceeds, 1 count
LARRY MILLER, 63, CHANHASSEN, MINN. (FORMER STARKEY SR. VP OF HUMAN RESOURCES)
Conspiracy to commit mail fraud and wire fraud, 1 count
Wire fraud, 4 counts
W. JEFFREY TAYLOR, 55, COLOGNE, MINN.
Conspiracy to commit mail fraud and wire fraud, 1 count
Mail fraud, 4 counts
Wire fraud, 10 counts
Conspiracy to commit money laundering, 2 counts
Financial transactions involving fraud proceeds, 4 counts
LARRY HAGEN, 63, MINNETONKA, MINN.
Conspiracy to commit mail fraud and wire fraud, 1 count
Wire fraud, 3 counts
Conspiracy to commit money laundering, 1 count
How they did it
According to the indictment, between 2006 and September 2015, the defendants “deployed various tactics to steal from Starkey, including controlling a complicated web of sham companies and dummy entities, surreptitiously awarding themselves restricted stock in Starkey’s retail affiliate, and embezzling money from the company by causing payments to be made by Starkey for the benefit of the co-conspirators and others.”
SHAM CONSULTING FEES - $7.6 MILLION: In 2006, Ruzicka and Taylor allegedly formed a sham company called Archer Consulting, through which they received commission payments for purported sales of hearing aid components from Sonion -- a major supplier of hearing aid components where Taylor served as president. In 2010, Ruzicka and Taylor changed the description of the fraudulent payments from “commissions” to “consulting fees” at amounts of $75,000 per months. Between 2006 and 2015, Ruzicka and Taylor allegedly stole more than $7.6 million through these sham company consulting fees.
ILLEGAL PROFITS - $600,000: Ruzicka, Taylor and Hagen are accused of running two dummy companies, Claris Investments and Archer Acoustics. Taylor allegedly lied to his employees at Sonion, telling them that these companies were Starkey affiliates, entitled to discounted products. Those discounted products were later sold to other manufacturers to collect at least $600,000 in illegal profits.
FORGED STOCK TRANSFERS - $15 MILLION: According to the indictment, Starkey founder Bill Austin created a company called Northland US for the purpose of operating retail hearing aid establishments. In 2006, without Austin’s knowledge, Ruzicka and Nelson transferred Northland’s assets to a new company they controlled, Northland Hearing Centers, Inc. They forged Austin’s signature to complete the transfer and later awarded themselves restricted stock, and ultimately cashed out for $15 million.
Cash, a car and a condo
According to the indictment, Ruzicka, Nelson and Miller abused their positions of power as Starkey executives in the following ways:
LUXURY CAR - In 2014, Ruzicka used $200,000 in Starkey funds to pay his state and federal personal income taxes. He also used Starkey funds to purchase a Jaguar for $119,188, then transferred ownership of the car from Starkey to himself by signing the title as both representative of the seller and also as the buyer.
CONDO FOR AFFAIR - According to the indictment, Nelson used more than $200,000 in Starkey funds to purchase a condo “so that he could carry on a clandestine personal relationship with a Starkey employee.” He also stole $225,000 to replenish his personal investment account after he bought a home in Prior Lake. To hide this theft, Nelson disguised the payment as a loan from Starkey, but the loan was never recorded.
When some details of the embezzlement were discovered in September 2015, Ruzicka, Nelson and Miller were fired by Starkey. Taylor was also fired by Sonion.
Starkey: Shocked would be an understatement
Starkey Hearing Technologies released the following statement following the release of the indictment:
“To say that we’re shocked by the betrayal and breach of trust described in today’s federal grand jury indictments would be an understatement. They describe a web of criminal activity and concealment among former top executives−who used forged signatures, fake invoices, fictitious vendors and falsified pay records to steal from the company and its founder. That description is in marked contrast to our long-held values and those of our separate foundation, the mission of which is to provide free hearing aids and the priceless gift of hearing to some of the world’s poorest people.
“Today’s indictments are the result of a year-long federal criminal investigation. As the victim, we have been cooperating with the government and will continue to do so.
“While there undoubtedly will be other developments in this matter as the prosecutions run their course, we will continue to be focused on our business, our customers and our core mission. After nearly 50 years, the 4,800 members of the Starkey family remain grateful for the opportunity to bring the gift of hearing to those in need.”