New Charges for Ex-Starkey Execs

Nancy Crotti

January 31, 2017

4 Min Read
New Charges for Ex-Starkey Execs

A superseding indictment adds filing false tax returns to the existing charges faced by former Starkey executives accused of stealing $20 million from the company.  

Nancy Crotti

Two fired executives of hearing aid manufacturer Starkey Laboratories face new charges in a federal embezzlement and fraud case.

The U.S. Department of Justice this week accused former Starkey president Jerry Ruzicka and former chief financial officer Scott Nelson of filing false tax returns. Ruzicka and Nelson were charged in September 2016 with running a complicated conspiracy that stole $20 million from the Eden Prairie, MN, company over nine years.

Former Starkey 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, were also charged in the original indictment.

A superseding indictment filed Wednesday charges Nelson with claiming a false tax deduction of $12.9 million on behalf of Starkey for 2013. The deduction covered allegedly fraudulent payments by Starkey subsidiary Northland Hearing of more than $15 million in restricted stock to Ruzicka, Nelson, and to a person identified only as J.L. in the indictment. Ruzicka, Nelson and several others were fired by Starkey in 2015.

The new charges also claim that Ruzicka's actual gross income was "substantially higher" than the $792,693 he claimed in 2011, and the $1,721,089 he claimed in 2015. Nelson is accused of reporting income of $567,979 in 2015, also much lower than his actual income, the indictment says.

The new charges shed additional light on the lengths to which Ruzicka and Nelson went to conceal their misconduct, Starkey spokesman Jon Austin said in an email.

"According to the indictment, one of the false tax returns--used to cover up the timing of payments on a $15 million theft--'had the effect of depriving Starkey of a significant tax benefit' of more than $14 million which our subsidiary could have claimed as a future deduction," Austin added. "The indictment therefore explains how these individuals - in an effort to aid their cover-up - victimized Starkey again by making the company pay more taxes than are owed."

Attorneys for Ruzicka and Nelson did not respond to messages seeking comment.

According to theoriginal indictment, 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 embezzled $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 condominium 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. ?

Nancy Crotti is a freelance contributor to Qmed.

[image courtesy of ACTIVEDIA/PIXABAY.COM]

About the Author(s)

Nancy Crotti

Nancy Crotti is a frequent contributor to MD+DI. Reach her at [email protected].

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