After more than two years of investigations and drama, a $20 million embezzlement trial regarding Eden Prairie-based hearing aid manufacturer Starkey Laboratories ended up in a split verdict.
Former Starkey president Jerry Ruzicka, who was stoic as the jury issued the verdict, was found guilty on eight of the 25 federal charges filed against him. One of his business associates and best friends — W. Jeff Taylor, former president of Starkey supplier Sonion U.S. — was found guilty on three of 16 charges against him.
Acquitted were Larry Miller, former human resources chief for Starkey, and another of Ruzicka’s business associates, Larry Hagen.
Although the jury did not find enough evidence to convict on 38 of the 49 counts, including the most serious charges of conspiracy and money laundering, the U.S. attorney’s office said the verdict was an important one.
“Ruzicka abused his position at Starkey and the trust placed in him by [Starkey owner] Bill Austin,” said Assistant U.S. Attorney Benjamin Langner. “He victimized not only his own employer but — along with Jeff Taylor — Sonion, one of Starkey’s main suppliers and Mr. Taylor’s employer. … This verdict sends a clear message that embezzlement and other forms of corporate fraud will be aggressively prosecuted regardless of the perpetrator’s position.”
The saga began in 2015, when an employee told Austin that Ruzicka was setting up another hearing aid company and recruiting Starkey employees. Austin launched an internal investigation that he said revealed criminal transactions by Ruzicka and others.
Austin turned over the evidence to the FBI and fired Ruzicka, plus several executives. What followed was a flurry of accusations, counter-accusations and wrongful termination lawsuits.
As the federal investigation took off, investigators raided Ruzicka’s home, seizing computers and his company Jaguar.
By the time the case came to trial in January 2018, many of the narratives were known. Austin said he was betrayed by trusted employees of his company, the largest U.S. hearing aid manufacturer. The defendants accused Austin of tax evasion and theft, and they accused his stepson, Brandon Sawalich — now Starkey president — of sexual harassment.
“The verdict demonstrates that the jury looked past these personal attacks on [Austin] and made their decision based on the evidence,” said Assistant U.S. Attorney Lola Velazquez-Aguilu. “This verdict vindicates Mr. Austin and achieves a just result for Starkey and all of its employees.”
Velazquez-Aguilu said her office would have liked the acquittals of Hagen and Miller “to go the other way,” but added that the prosecutors respect the jury’s decision.
“We believed from the outset that this particular case needed to be charged criminally, brought before a court, tried publicly and decided by a jury,” said U.S. Attorney Greg Brooker after the verdict.
Kevin Short, Hagen’s attorney, said he and his client were gratified with Hagen’s acquittal on all four counts against him. “I don’t think it was even close. I don’t think the government should have ever brought the case,” Short said.
Hagen’s brother, Glenn, said the case ruined Larry Hagen’s business and squashed his chances of getting business loans to expand.
“We don’t understand why my brother has been dragged into this,” he said. “It just seemed like a very weak case. We are thrilled.”
Paul Engh, Miller’s attorney, also expressed gratitude after his client was acquitted of four counts. “It was right and just,” he said.
Miller was accused of stealing nearly $990,000 in bonuses from Starkey and hiding the money from Austin. Engh told jurors that the money was proper, was approved by Ruzicka and was written into Miller’s employment contract.
The jury found Ruzicka, of Plymouth, guilty of eight of the 25 counts against him, including mail and wire fraud for his role in illegally transferring $15 million in restricted Northland Hearing stock from Austin to himself and two others.
Ruzicka was also convicted of wire fraud for using the sham company Archer Acoustics to siphon money from Sonion U.S. and Starkey. Lastly, he was convicted of filing a false 2014 tax return and of stealing the 2011 Jaguar that had served as his company car when he was at Starkey.
Before the verdict was read, Ruzicka said: “Maybe this will go the way it’s supposed to.”
His attorney, John Conard, said he and his client had no comment after the verdict was read.
Taylor turned red and became tearful after his verdict was read. The jury found Taylor guilty on three of 16 counts against him: mail fraud in connection with his work with Archer Consulting and two counts of wire fraud in connection with Archer Acoustics.
Both companies were deemed by prosecutors to be “shams” set up by Taylor and Ruzicka in connection with their positions at Starkey and Sonion. The prosecution said the men’s employers did not know about the companies or the hefty commissions that the two men were receiving.
Flanked by family members and their attorneys, the defendants took turns embracing Ruzicka and consoling each other following an arduous six-week trial and mixed verdicts.
Taylor’s attorney, Bill Mauzy, said: “Of course we were hoping for not guilty verdicts on all 16 counts, but Mr. Taylor was charged with a $25 million fraud and acquitted of 13 of the 16 counts alleged, including the most serious charges of conspiracy and money laundering.”
Mauzy said the total monetary losses for Taylor’s three guilty counts amounted to less than $150,000. The size of the dollar loss is what dictates sentencing guidelines, he said, adding that he believes Taylor now faces up to two years in prison.
“And we hope to do better than that,” he said, “so I put this result solidly in the win column for Mr. Taylor.”
Starkey said in a statement that the company was grateful to the jury, prosecutors and federal agents for their efforts.
“This decision closes a chapter in our history and lets us focus the entirety of our attention on our employees and the company’s future, on the customers we serve around the world and on their patients who depend on us for better hearing,” the statement said.
A sentencing hearing is expected to be scheduled within the next few months.