Five Indicted For Massive Fraud Perpetrated Against Starkey Laboratories

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https://www.justice.gov/usao-mn/pr/five-indicted-massive-fraud-perpetrated-against-starkey-laboratories

Department of Justice
U.S. Attorney’s Office
District of Minnesota

FOR IMMEDIATE RELEASE
Wednesday, September 21, 2016

Five Indicted For Massive Fraud Perpetrated Against Starkey Laboratories

Three former Starkey executives indicted for $20 million theft

United States Attorney Andrew M. Luger today announced a federal indictment charging JEROME RUZICKA, SCOTT NELSON, LAWRENCE MILLER, JEFFREY TAYLOR, and LAWRENCE HAGEN with conspiring to steal more than $20 million from Eden Prairie-based Starkey Laboratories, Inc. (Starkey) and its principal owner William F. Austin.The defendants are expected to make initial appearances in U.S. District Court in Minneapolis later this week.
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According to the indictment, between 2006 and September 2015, the defendants conspired to embezzle and misappropriate money and business opportunities belonging to Starkey and Sonion, a major supplier of hearing aid components to Starkey. The co-conspirators 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.

According to the indictment, in 2006, RUZICKA and TAYLOR created a sham company called, Archer Consulting. RUZICKA caused Starkey to pay Archer Consulting “commission” payments for purported sales of hearing aid components from Sonion, where TAYLOR served as president. In 2010, RUZICKA and TAYLOR changed the description of the fraudulent payments from “commissions” to “consulting fees.” Thereafter, RUZICKA caused Starkey to begin paying consulting fees to Archer Consulting of $75,000 per month. Between 2006 and 2015, RUZICKA and TAYLOR stole approximately $7,650,000 through their sham company.

According to the indictment, RUZICKA, TAYLOR and HAGEN controlled two dummy entities, Claris Investments and Archer Acoustics. TAYLOR falsely represented to Sonion that these entities were Starkey affiliates, thereby securing Starkey’s discounted pricing on hearing-aid components for Claris and Archer Acoustics. RUZICKA, TAYLOR, and HAGEN, used their entities 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 and NELSON surreptitiously transferred Northland LLC’s assets to a new entity they controlled, Northland Hearing Centers, Inc. They forged Austin’s signature to complete the transfer of assets, later awarded themselves restricted stock, and ultimately paid themselves and another individual approximately $15 million in exchange for terminating the restricted stock grants.

According to the indictment, RUZICKA, NELSON and MILLER also abused their positions of authority as Starkey executives to embezzle money and fraudulently obtain benefits from Starkey. RUZICKA awarded himself and other co-conspirators hidden bonuses that were concealed from Austin by falsifying compensation reports.
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