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Ousted Starkey Labs Executives Indicted In $20M Fraud Scheme

MINNEAPOLIS (WCCO) -- Three former Starkey Laboratories executives and two of their business associates are indicted in an plot that took more than $20 million from the company, according to a statement from federal prosecutors Wednesday.

Authorities say Jerry Ruzicka, Scott Nelson, Larry Miller, and Lawrence Hagen were operating a web of sham companies and dummy entities to embezzle funds from Starkey Labs and Sonion -- a major supplier of hearing aid components to Starkey -- in a scheme that dates back 10 years. Jeffrey Taylor -- also charged in the scheme -- was formerly an executive at Sonion.

It was just a year ago -- in September 2015 -- that the executives were suddenly fired from the company, with little information as to why. The company only cited an ongoing investigation.

Later, in January, Ruzicka filed a wrongful termination lawsuit against the company, alleging he was fired only because he refused to promote Starkey founder Bill Austin's stepson to a higher post. Ruzicka was asking for $10.6 million in the lawsuit.

According to a statement from federal authorities, Ruzicka and Taylor created a "sham" company called Archer Consulting in 2006 and funneled "commission payments" and "consulting fees" to the two executives for purported sales to Sonion. Those fees, prosecutors say, reached $75,000 per month, and totaled $7.65 million over the next nine years.

Authorities also allege Ruzicka, Nelson and Miller abused their positions of authority at Starkey to obtain benefits and embezzle money from the company. Prosecutors say Ruzicka awarded himself and other co-conspirators bonuses that were hidden from Austin via falsified compensation reports.

Nelson, authorities say, even used more than $200,000 in company funds to purchase a condo so that he could carry on an affair with another Starkey employee. Prosecutors also say Nelson took more than $225,000 from the company, but claimed it as a loan. That loan was never reported in company documents and Nelson hadn't made any repayments.

In all, federal authorities say the five men took more than $20 million from Sonion, Starkey and its founder Bill Austin.

Though the charges haven't officially been filed and released, prosecutors say 63-year-olds Hagen and Miller are facing five federal charges each, 58-year-old Nelson is facing six federal charges, 55-year-old Taylor is facing 21 federal charges, and 59-year-old Ruzicka is facing 29 federal charges.

"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," Starkey spokesman Jon Austin said in a statement. "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."


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