Former Starkey CFO sentenced to 24 months in federal prison

Sentencing hearings continued Thursday in the Starkey Laboratories fraud and embezzlement case, with the former chief financial officer of the Eden Prairie-based hearing aid maker receiving 24 months in prison and the former president of one of its suppliers receiving 18 months.

Jeff Longtain, former president of Starkey subsidiary Northland Hearing, received a year of probation. He pleaded guilty a year ago to tax evasion and testified against his former bosses.

Scott A. Nelson, the former CFO, pleaded guilty a year ago to one count of conspiracy in the multimillion-dollar fraud against Starkey. He testified in the trial against his boss, former Starkey President Jerry Ruzicka, that he falsified company financial reports and at least one tax filing.

W. Jeff Taylor — Ruzicka's close friend and the former president of supplier Sonion U.S. — was convicted in March of one count of mail fraud and two counts of wire fraud for hiding his ownership position in sham companies and then wrongly routing commissions, fees and discounts to himself and Ruzicka at the expense of Starkey and Sonion.

Ruzicka, who was fired as Starkey's president in September 2015 and indicted in September 2016, received a seven-year prison sentence Wednesday for his part in siphoning money through sham companies; for stealing $15.5 million worth of restricted stock in Starkey subsidiary Northland Hearing; and for orchestrating $1.9 million in fraudulent bonuses for himself and others.

During Nelson's sentencing hearing Thursday, prosecutors said that Nelson falsified income reports at Starkey, helped orchestrate parts of the Northland stock scheme and secretly used a $200,000 condominium that Starkey owned for two years without paying for it.

While terms of the plea agreement that Nelson reached with federal prosecutors remain under seal, the judge noted Thursday that Nelson could have faced up to five years in prison for his crimes.

U.S. District Judge John Tunheim ultimately sentenced Nelson to two years in prison and said Nelson must forfeit $2.5 million.

"I do agree that you provided important and significant testimony in this case, but at the same time it was a serious offense," Tunheim said as Nelson stood before him in the Minneapolis federal courtroom.

When given the chance to speak, Nelson apologized to Starkey's employees and the government and said how grateful he was that his family stood by him. Nelson's wife, daughter and son-in-law were in the courtroom for the sentencing.

Nelson will report to prison in February and has requested placement in the Federal Prison Camp in Duluth.

Ruzicka and Taylor are to report to prison March 11 and also requested the Duluth prison as their first choice for serving their sentence.

In Taylor's case, Tunheim reduced the amount of money connected to his three charges to roughly $338,000. In addition to his 18-month prison sentence, Taylor also will serve two years of probation and must enroll in the prison's drug treatment program.

The U.S. attorney's office had asked for a sentence of seven to nine years for Taylor, and prosecutors told the court Thursday he showed no remorse and has not apologized to Sonion or its employees.

Taylor's attorney, Bill Mauzy, asked for extreme leniency and said his client had accepted responsibility for his actions.

Taylor, at times teary-eyed, told the court he "sincerely regrets" his behavior.

"I've lost nearly everything, and I will pay for that for the rest of my life," said Taylor, who had no family at the sentencing hearing.

Tunheim said there were problems with Taylor's lack of disclosure to Sonion and that his case "certainly was serious and involved a lot of money."

After the sentencing, Mauzy said: "I am really pleased and quite frankly relieved by Judge Tunheim's sentencing of Mr. Taylor to 18 months."

Ruzicka, as well as former business associate Larry Hagen, who was acquitted in March of charges related to the sham companies, were at the sentencing hearing to support Taylor.

Taylor was originally charged with 16 counts of fraud, but the jury convicted him of only three.

Besides probation, Longtain, the former president of Northland Hearing, was ordered to forfeit roughly $2 million, including repaying Starkey about $439,000 and the Internal Revenue Service $91,000.

"You did the right thing here," Tunheim said. "Your early cooperation was very helpful to the early resolution of this case."

Prosecutors said that of the co-conspirators who cooperated, Longtain was the most forthcoming and took responsibility for his actions.

Longtain, in speaking to the court, also took responsibility publicly.

"I want to apologize to [Starkey majority owner] Bill Austin and all the employees I have betrayed," he said. "I'm here because of what I did, the actions I committed. If I had done the right thing, I would not be standing here today."