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Former Starkey Execs Charged With Stealing $20 Million

An indictment unveiled in Minnesota claims a complicated web of sham companies and dummy entities set up to siphon away money from the privately held hearing aid manufacturer and developer.

Chris Newmarker

Jerry Ruzicka 

A year after the president, chief financial officer, and human resources vice president were fired from hearing aid manufacturer Starkey, a federal indictment charges the three men and two others of running a complicated conspiracy that stole $20 million over nine years. 

The indictment covers former Starkey president Jerry Ruzicka, former chief financial officer Scott Nelson, and former human resources senior vice president Larry Miller, as well as two friends of Ruzicka--Jeffrey Taylor, former president of miniature parts supplier Sonion, and Lawrence Hagen, who also aided in the alleged conspiracy. 

The five men are expected to appear in U.S. District Court in Minneapolis this week. 

Charges in the case range from everything from making financial transactions related to fraud proceedings to conspiring to commit money laundering, wire fraud, and mail fraud. 

"The defendants carried out a complex scheme to accomplish a simple goal: to embezzle funds for their own benefit,"  U.S. Attorney Andrew Luger said in a news release

Ruzicka's lawyer John Conrad responded to media outlets that his client has done nothing wrong and has been dedicated to Starkey since he started working there in the 1970s

The indictment claims Ruzicka and the other defendants stole from the company between 2006 and September 2015, when Ruzicka and scores of other employees at the company were fired. According to prosecutors, the alleged theft was accomplished through a number of strategies:

  • Ruzicka and Taylor created a fake company called Archer Consulting that that received "commission" payments for supposed sales of hearing aid components from Sonion to Starkey. By 2010 the commission payments were reclassified as "consulting fees," with Starkey paying Archer Consulting $75,000 per month. Ruzicka and Taylor were able to steal $7.65 million through the setup, according to the indictment. 
  • Ruzicka, Taylor, and Hagen controlled two dummy entities called Claris Investments and Archer Acoustics. Taylor falsely told others at Sonion that the two entities were Starkey affiliates, allowing the entities to buy discounted components that could then be sold to other companies at a profit. The scheme pulled in $600,000 in profits.
  • Starkey's founder, principal owner, and CEO Bill Austin had created an affiliate called Northland USA in 2002 that acquired and operated retail hearing aid establishments. Ruzicka and Nelson are accused of forging Austin's signature in order to transfer Northland USA's assets to an entity they controlled, called Northland Hearing Centers. Ruzicka and Nelson ended up awarding themselves restricted stock, paying themselves and another individual $15 million to in exchange for terminating the restricted stock grants. 
  • Ruzicka gave himself and others bonuses, concealing the bonuses from Austin by falsifying compensation reports. 
  • In 2014, Ruzicka supposedly embezzeled $200,000 in "officers insurance," using the funds to pay for his state and federal income taxes. 
  • Ruzicka, according to the indictment, took the 2011 Jaguar that the company allowed him to use and transferred ownership to himself. 
  • The indictment also claims that Nelson took $200,000 and used it to buy a condimium where could engage in a secret relationship with a Starkey employee. Nelson also stole $250,000 to restore his investment account after buying a home in Prior Lake, MN.  

Chris Newmarker is senior editor of Qmed. Follow him on Twitter at @newmarker.

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