Former Starkey Laboratories executive Jeff Longtain testified Friday in federal court that he embezzled $143,000 in phony commissions from the subsidiary he headed and its vendors. He also said he came to believe that $2.3 million he received as part of a restricted stock sale in 2013 was improper.
Longtain, 59, and the former president of Starkey’s Northland Hearing Centers subsidiary, pleaded guilty to one count of tax evasion in connection with the stock grant fraud. He testified on behalf of the government in U.S. District Court in Minneapolis Friday.
“I did it. I am guilty,” Longtain said regarding $143,000 in fake commissions and fees he took from Starkey’s Northland and three vendors. He also admitted to receiving a fake “loan” from Starkey that was designed to cover his tax payments on the Northland stock.
In respect to the stock fraud, Longtain said he eventually came to suspect that his bosses orchestrated Northland’s stock transfer in secret, without proper permission from Starkey’s majority owner Bill Austin.
The commissions and restricted stock awards that Longtain received over 10 years are part of a larger federal fraud case on trial that is expected to last into March.
The government has charged two former Starkey executives and two associates of stealing $20 million from Starkey and Austin. Starkey’s former President Jerry Ruzicka, former human resources head Larry Miller and former business associates W. Jeffrey Taylor and Larry T. Hagen have all pleaded not guilty.
Separately, the government charged Longtain and Starkey’s former Chief Financial Officer Scott Nelson, who pleaded guilty to conspiracy. Nelson also is expected to testify in front of U.S. District Judge John Tunheim.
The largest of the fraud allegations centers on $15 million in restricted stock for the Northland subsidiary. Longtain testified Friday that Ruzicka originally offered him shares in Northland in 2006, because he “wanted me to become and lead like an owner.”
Prosecutors allege that Ruzicka and Nelson secretly, without Austin’s approval, transferred those Northland stock grants from Austin to themselves and Longtain in 2006. The grants were then sold in 2013, netting the three men about $8 million and resulting in a $7 million tax liability for Starkey, that Starkey also paid.
Longtain told jurors that Ruzicka first pitched the idea of stock ownership in 2006 but said “he must first get Mr. Austin to approve.”
When Ruzicka circled back to him with the appropriate paperwork, Longtain assumed Austin had approved, but the paperwork “surprised” him. The document gave 51 percent of Northland Hearing’s ownership to Ruzicka, Nelson and Longtain. Only 49 percent went to Austin.
“I was surprised that Bill would give up the majority of the ownership. He is not someone who would give anything away,” Longtain said, answering a question from U.S. Assistant Attorney Lola Velazquez-Aguilu.
Ruzicka’s defense attorney John Conard showed jurors Northland incorporation documents that were filed with California, Alabama, Arizona and other states, contending that the filings proved the deal was not secret.
The defendants’ attorneys have argued that Austin knew, permitted and benefited financially from all the transactions he and the government now question. In court documents, they further accuse Austin of tax fraud, lying under oath and misdirecting some company funds that belonged to employee shareholders. Austin has denied wrongdoing and will testify next month.
Incentive to testify
Friday, Conard also told jurors that Longtain had an incentive to testify against Ruzicka. Without a plea deal, Longtain faced 12 to 25 years in prison. With the plea deal, Longtain could face as little as 10 to 18 months, he said.
Longtain said he came to believe something was amiss when at some point between 2006 and 2013, a colleague called him and said Nelson became extremely angry after being asked to sign papers disclosing that Austin, Ruzicka, Nelson and Longtain were the “owners” of Northland Hearing Centers.
The paperwork was necessary to get Northland credentialed as a Medicaid vendor. The manager “asked each of us to sign it,” Longtain said.
When Velazquez-Aguilu asked why the request would provoke such outrage, Longtain said he assumed Austin must not have known that he was no longer the sole owner of Northland. Longtain also said he never approached Austin about Northland.
Longtain received $2.3 million in Northland proceeds after the stock grant was sold in 2013. The stock wasn’t set to fully vest until 2016.
When asked why he didn’t question the rush, Longtain said: “It was like winning the lottery. I would get a couple of million of dollars now rather than have to wait for it. It would pay for my retirement and help me help my kids. I wanted the money.”
The trial resumes Feb. 6 after a break because of the Super Bowl.