Starkey Laboratories owner Bill Austin — on the stand for a second day in a fraud trial against the company’s former president and three others — said he had never seen nor read key documents outlining how a subsidiary was set up and structured.
Jerry Ruzicka, the former president, is on trial along with former human resources chief Larry Miller and business associates W. Jeffrey Taylor and Larry T. Hagen on charges they embezzled $20 million from Eden Prairie-based Starkey.
The men have pleaded not guilty, and their attorneys have said Austin either knew or should have known about the transactions under dispute in the trial.
Austin testified he had never seen critical consolidated financial statements addressed to Starkey’s board of directors of which he is the sole member. Several of those auditor documents outlined how assets were transferred from the company’s Northland U.S. LLC subsidiary to a new entity called Northland Hearing Centers Inc.
Starkey paid $5.3 million for 49 percent ownership of Northland Hearing Centers with Ruzicka, former Chief Financial Officer Scott Nelson and former subsidiary President Jeffrey Longtain obtaining the other 51 percent of the shares.
Austin called the entire idea of the Northland Hearing arrangement pure “nonsense” because “I don’t hold minority interests in things. I hold things [outright].”
He said he had not seen appraisal reports for Starkey’s employee stock ownership program in 2006 and 2007 or a McGladrey & Pullen document from 2009 that discussed Starkey’s minority ownership stake in Northland Hearing. Austin also said he did not see a 2014 audit report that laid out how the others’ restricted stock in Northland had been sold to Starkey for more than $15 million.
“I have never read or seen these documents,” Austin told the court Monday, during his second day on the witness stand.
He said he only knew of the original Northland U.S. — which was created to hold Starkey’s real estate holdings and some small retail hearing operations. Austin said he believed Ruzicka and Nelson kept many documents from him in order to hide fraudulent actions.
The complicated fraud case in which Austin is testifying has taken two-and-a-half years to get to trial. Longtain and Nelson have pleaded guilty to charges in connection with the case, and Longtain testified that he came to suspect Austin might not have known about Northland’s structure or the stock sale.
The four defendants on trial are accused of taking the stock proceeds, plus fraudulent bonuses, commissions, rebates and product discounts.
U.S. Assistant Attorney Lola Velazquez-Aguilu told the court Monday that Austin was a victim. In questioning Austin, she noted that even after Austin confronted Ruzicka with what he knew following an internal investigation in the fall 2015, Ruzicka was heard on a secret videotape attempting to “pressure” Austin to quickly make a deal in which Austin would pay him $10 million that was part of the pension component of Ruzicka’s employment contract. Ruzicka also suggested another $500,000 in consulting fees.
In exchange, Ruzicka agreed to leave the company. “Just pay me what you owe,” Ruzicka said on tape.
Austin, who was on the stand for hours Monday and will testify again Tuesday, said he couldn’t come to grips with Ruzicka’s request. “The scope of the investigation of things we kept finding kept expanding,” Austin told jurors.
Under cross-examination, Ruzicka’s defense attorney, John Conard, asked Austin about a document showing that the Northland Hearing Centers entity was used by Starkey to buy the hearing aid retail business that belonged to Austin’s in-laws, Joe and Pat Manhart. This document and others, he said, show Austin should have known about the business dealings, especially since the papers had his name on them.
But Austin said he did not write the agreement with his in-laws. He would have orchestrated the deal and left its execution to Ruzicka or Nelson. “How the contract was executed, I have no idea.”
Austin said he trusted his attorneys, accountants and executives to inform him of the contents of business documents, and he would sign them without necessarily reading them.
Austin said that he never suspected that Ruzicka was running Northland as the majority owner. “I thought he was working for me,” Austin said.
Austin also claimed that someone else signed his name on documents from 2005 onward that confirmed the titles and salaries of all executives within Starkey.