Two Starkey Laboratories IT managers got the surprise of their careers in 2015 when the company's owner ordered them to search co-workers' computers for evidence that the then-company president, Jerry Ruzicka, allegedly was plotting to start a rival hearing aid company and recruit Starkey employees.
Robert Duchscher, Starkey's chief information technology officer, told a federal jury on Thursday that what they found instead were several questionable documents, including a W-2 form showing that the company's then-chief financial officer, Scott Nelson, had earned $4 million in 2014.
"That was not normal for any employee at Starkey," Duchscher said.
The discovery of the W-2 led to a call to the Federal Bureau of Investigation that resulted in a deeper investigation of Nelson and Ruzicka and their business practices and charges that they were part of a $20 million embezzlement scheme.
Nelson has pleaded guilty to conspiracy charges and is set to testify later in the trial. The trial on fraud and theft charges against Ruzicka and three alleged co-conspirators — Larry Miller, Starkey's former human resources chief and business associates W. Jeff Taylor and Larry Hagen — began Wednesday in U.S. District Court in Minneapolis and is expected to last up to six weeks.
In opening statements Wednesday, attorneys for the defendants said their clients dispute all the charges and accused the company's owner, Bill Austin, of wrongdoing.
Ruzicka, Nelson, Miller and other employees were fired in fall 2015 from the Eden Prairie-based company, the largest U.S. manufacturer of hearing aids. Austin told employees at a meeting that the company had allegedly found evidence of misdeeds.
Duchscher and several other employees testified Thursday that they found various documents pertaining to payroll, bonuses, mail or other issues.
The defendants are accused of fraudulently transferring restricted stock to themselves, creating sham companies, collecting millions in fake invoices, rebates, and commissions or illegally issuing themselves millions in bonuses and insurance policies.
Austin has said he did not authorize the practices.
Duchscher testified Thursday that Ruzicka once had an upbeat and positive opinion of both Austin and Austin's stepson, Brandon Sawalich, that had soured. In Ruzicka's last two years at the company, Duchscher said, "he was disparaging about Bill" and "I started to hear more and more about how Jerry [felt he] really ran the company and that Bill didn't." Ruzicka allegedly told managers he did not want compensation discussed with Austin.
Duchscher said Ruzicka also changed from being a "close" mentor to Sawalich to bashing him before others in executive staff meetings.
Duchscher said he was surprised and delighted three years ago when he was unexpectedly called to meet with Ruzicka, who laid out a generous employment contract that promised him a job for years, a 5 percent annual raise and a "loyalty bonus" that would be paid at the time of his retirement or termination. Ruzicka, he said, told him he had authority over all pay matters at the company.
Duchscher said Ruzicka then instructed him to put the signed contract in a safe-deposit box and not to discuss it with anyone in the company. If Duchscher were to leave the company at any point, he was told to present the employment contract to the head of human resources, who would then arrange Duchscher's future payments.
Duchscher testified that Austin told him in September 2015 that he had never known about or approved the contract and that it was so generous no company owner "in their right mind" would have signed it.
Duchscher said when Austin first asked him to secretly search the computers of several executives, he refused. But presented with more information from Austin, he relented and created a ruse, telling different executives that he needed to borrow their computers for a spell in order to install anti-hacking software.
Searches of Ruzicka's computer turned up information about a Starkey subsidiary called Northland Hearing. Prosecutors allege that Ruzicka, Nelson and Northland President Jeff Longtain secretly transferred and then cashed in Northland's restricted stock, when it really belonged to Austin.
Longtain has pleaded guilty to tax evasion.
Defense attorneys have argued that the Northland stock deal was done with Austin's full knowledge. They are expected to call witnesses to testify on the matter when they present their case later in the trial.
Agents from the FBI and the Internal Revenue Service are set to testify on Friday.