Fraud trial against former Starkey executives starts Tuesday

More than two years after they were walked out of Starkey Laboratories headquarters, two fired executives and two associates will be tried Tuesday on federal charges they stole millions from the Eden Prairie company.

Fired President Jerry Ruzicka, fired human resources head Larry Miller, plus former business associates W. Jeffrey Taylor and Lawrence T. Hagen, are accused of stealing a combined $20 million from Starkey, the largest hearing aid manufacturer in the United States. They have all pleaded not guilty.

As for the trial, "We are ready to go," said Miller's attorney, Paul Engh. "There was no fraud."

Because the allegations of fraud, conspiracy and theft are complicated, the trial before Judge John Tunheim in U.S. District Court in Minneapolis is expected to take at least six weeks. But because of logistical problems caused by the Super Bowl — which will be played on Feb. 4 at U.S. Bank Stadium — the trial will take a break from Jan. 29 to Feb. 5. The federal courthouse is blocks from both the stadium and Nicollet Mall, where many Super Bowl-related activities will be held.

The case is expected to be closely watched by much of Minnesota's legal and business community.

JaneAnne Murray, a University of Minnesota law professor and criminal defense attorney not involved in the Starkey case, said the trial is "very unusual."

"It's rare for high-level corporate executives to be prosecuted," Murray said, adding that there are a few key reasons.

Another reason it will be closely watched, she said, is that federal policy changes put into motion by the Obama administration have made it easier for the government to charge high-ranking corporate individuals with crimes.

The indictments against the six former Starkey executives and associates landed soon after that policy change, Murray noted.

Two other fired Starkey executives — Chief Financial Officer Scott Nelson and Jeffrey Longtain, head of Starkey's Northland Hearing subsidiary — have pleaded guilty to charges. Nelson faces up to five years in prison for conspiracy while Longtain faces up to three years on tax-evasion charges.

Attorneys expect the trial will involve scores of witnesses, including the company's majority owner, Bill Austin, and thousands of pages of e-mails, employment and sales contracts, bank and stock records and insurance policies. The U.S. attorney's office has accused Ruzicka, with Nelson's help, of secretly transferring and selling $15 million worth of restricted stock options in Northland Hearing that actually belonged to Austin.

Ruzicka's attorneys have said their client's actions were either done with Austin's permission or within his authority as president of the company.

Miller is accused of secretly issuing himself bonuses and then deleting those payments from compensation records he sent to Austin for review. Miller has denied the allegations. His attorney, Engh, said Miller was paid "what he deserved to be paid."

Both Miller and Ruzicka have filed wrongful-termination and breach-of-contract lawsuits against Starkey alleging harmful behavior and broken promises and contracts by Austin or the company. Both lawsuits are on hold until the criminal case is resolved.

Business associates Taylor and Hagen are accused of working with Ruzicka to create sham companies and of benefiting from improper product discounts, price markups, commissions and consulting fees.

Federal prosecutors say Ruzicka and Taylor embezzled $7.6 million from Starkey by using fake invoices. The charges also allege the two men plus Hagen obtained another $600,000 in fraudulent commissions, rebates and profits.

Starkey officials have said they started investigating the executives in summer 2015, and in September, they had enough evidence to fire them and get federal authorities involved. Charges were filed a year later.