Former Starkey President And Business Associate Found Guilty Of Massive Fraud Perpetrated Against Starkey Laboratories

JEROME RUZICKA and JEFFREY TAYLOR were convicted by a federal jury of charges related to stealing more than $15 million from the Eden Prairie-based Starkey Laboratories, Inc. (Starkey) and its principal owner William F. Austin, as well as one of Starkey’s suppliers, Sonion. RUZICKA is the former President of Starkey. U.S. District Court Chief Judge John Tunheim presided over the trial, which lasted nearly six weeks in Minneapolis. Former Starkey Chief Financial Officer (CFO) Scott Nelson and another former Starkey executive Jeff Longtain previously pleaded guilty in connection with this case.

United States Attorney Gregory G. Brooker, announcing the convictions, today, said, “It was pure greed that motivated these defendants. The FBI, IRS, and U.S. Postal Inspection Service meticulously uncovered the depth of the fraud, which lasted nearly a decade, and the trial team successfully presented the complex case to the jury. The jury was able to cut through the complexity and distractions and get to the truth. I want to also want to commend the victims in this case, Bill Austin, the employees of Starkey, and the Sonion Company, for their cooperation with this prosecution.” 

“As proven at trial, defendants Jerry Ruzicka and W. Jeff Taylor misused their extensive corporate knowledge and positions of trust over a period of years to steal millions from Starkey Laboratories,” said Acting Special Agent in Charge Robert C. Bone II of the FBI Minneapolis Division. “Corporate fraud such as this not only negatively impacts individual companies and institutions but risks overall stability of the marketplace as fraud losses accumulate. The FBI will continue to work closely with our criminal justice partners to detect corporate fraud and hold those responsible to account for their crimes.”

“IRS Criminal Investigation is committed to investigating individuals who use corporations as personal piggy banks. Corporate fraud impacts many levels of society from investors to the honest, hardworking Americans who pay their tax obligations,” said Hubbard Burgess, IRS Criminal Investigation Special Agent in Charge.

“Today’s verdict reaffirms the critical role the U.S. Postal Inspection Service plays in partnering with our fellow law enforcement partners at the FBI and IRS-CID in protecting the American consumer from these types of fraudulent schemes,” said Craig Goldberg, Inspector in Charge of the Denver Division of the U.S. Postal Inspection Service, which includes Minnesota. “Postal Inspectors are committed to ensuring that the nation’s mail stream is not used by criminals to prey upon our citizens,” said Goldberg.

As proven at trial between 2006 and September 2015, RUZICKA, TAYLOR and others schemed to embezzle and misappropriate money and business opportunities belonging to Starkey and Sonion, a major supplier of hearing aid components to Starkey. 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 defendants and others.

RUZICKA and TAYLOR controlled a dummy entity, Archer Acoustics. TAYLOR falsely represented to Sonion this entity was a Starkey affiliate, thereby securing Starkey’s discounted pricing on hearing-aid components for Archer Acoustics. RUZICKA and TAYLOR used Archer Acoustics to purchase the discounted products that they later re-sold to other manufacturers to obtain illicit profits. At times, the illicit profits came in the form of fraudulent commissions and rebates.  The defendants obtained at least $600,000 in profits, commissions and rebates by fraudulently leveraging Starkey’s purchasing power for their own benefit.

Another facet of this scheme was related to Starkey’s retail affiliate, Northland US, LLC, which Austin created in 2002. He was the sole owner. The purpose of Northland LLC was to acquire and operate retail hearing aid establishments. In 2006, without Austin’s knowledge, RUZICKA surreptitiously transferred Northland LLC’s assets to a new entity they controlled, Northland Hearing Centers, Inc. RUZICKA and former Starkey CFO Scott Nelson forged Austin’s signature to complete the transfer of assets, later awarded themselves restricted stock, and ultimately paid themselves and Jeff Longtain approximately $15 million in exchange for terminating the restricted stock grants.

As proven at trial, in 2014, RUZICKA embezzled $200,000 from Starkey under the guise of “officer’s insurance.” He used those funds to pay his state and federal personal income taxes. RUZICKA also stole a 2011 Jaguar automobile that Starkey purchased for his use at a cost of $119,188.77. Starkey paid the fees, insurance premiums, and other costs associated with the automobile. Nevertheless, in July 2015, RUZICKA transferred ownership of the car from Starkey to himself by signing the title as both representative of the seller and also as the buyer. He did not pay Starkey for the vehicle, nor was it reported as a taxable benefit.

In total, RUZICKA and TAYLOR are alleged to have conspired to steal more than $15 million from Starkey and Sonion.

When some details of the scheme were discovered in September 2015, RUZICKA was terminated by Starkey. TAYLOR was also terminated by Sonion when Sonion became aware of the fraud.

Lawrence Miller and Lawrence Hagan, also charged in this case, were acquitted by the jury. While we had hoped for a different outcome, we respect the jury’s verdict and thank them for their service during this long and complex trial. 

This case is the result of an investigation conducted by the FBI, Criminal Investigation Division of the IRS, and the United States Postal Inspection Service.

Assistant U.S. Attorneys Benjamin Langner, Lola Velazquez-Aguilu, and Surya Saxena are prosecuting the case.

Defendant Information:                                                                                                                     

JEROME C. RUZICKA, 61
Plymouth, Minn.

Convicted:

• Mail fraud, 4 counts
• Wire fraud, 3 counts
• Tax fraud, 1 count

 
W. JEFFREY TAYLOR, 57
Cologne, Minn.
 
Convicted:

• Mail fraud, 1 counts
• Wire fraud, 2 counts

 
 
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United States Attorney’s Office, District of Minnesota: (612) 664-5600