Starkey Laboratories owner Bill Austin said in federal court Friday that he never gave fired company President Jerry Ruzicka permission to buy a stake in other companies or to include stock in a subsidiary as compensation for himself and other executives.
Austin testified on behalf of prosecutors Friday in the fraud case against several former executives from his company, the largest U.S. hearing aid manufacturer. Defense counsel is expected to begin cross-examination on Monday.
“I trusted Jerry implicitly. I never thought he would take 5 cents from the company that was not earned,” the 75-year-old owner of Starkey told U.S. prosecutors Friday.
Ruzicka; former Starkey human resource chief Larry Miller; and business associates W. Jeffrey Taylor and Lawrence T. Hagen are accused of stealing more than $20 million from Starkey through the illegal transfer of restricted stock from Austin to themselves, and via the establishment of three sham companies and improper bonuses, commissions and rebates. The men have all pleaded not guilty.
Austin’s testimony was not a surprise. Since the company fired Ruzicka and several other employees in fall 2015, Starkey has claimed its former president made several deals without Austin’s knowledge that siphoned company money into payments to executives and business associates in the form of stock deals, commissions, bonuses, insurance polices and more. The defense has maintained that Austin either did know about the transactions or that he should have.
But the prosecution offered new information about the souring of Austin and Ruzicka’s relationship. The prosecutors played a 45-minute video recording made without Ruzicka’s knowledge shortly before he was escorted off the property by sheriff’s deputies.
In the video, Ruzicka told Austin he “was hurt” in December 2014 when Austin made it clear that he did not want Ruzicka to stay on as president of Starkey after Ruzicka’s employment contract expired in 2016. Instead, Austin planned to make his stepson the president of the company.
In the video, Austin claimed that he offered Ruzicka the role of CEO, but Ruzicka — who had worked at the company for 38 years, served as president since 1998 and was largely responsible for saving Starkey from bankruptcy, said after that 2014 meeting he was “frozen” out and treated differently by Austin, Austin’s wife, Tani, and stepson Brandon Sawalich, whom Ruzicka described as incompetent and someone who regularly threw his power around.
“It was pretty clear you didn’t want me here. There wasn’t any ambiguity in my mind,” Ruzicka said on the video. “I haven’t done anything differently than trying to keep this company healthy.”
Prosecutors said Austin began an internal investigation at Starkey during the summer of 2015 after learning that Ruzicka was recruiting Starkey employees for a new company Ruzicka would form after his contract ended. The initial investigation unearthed the alleged embezzlements, prosecutors said.
In the video, Austin confronted Ruzicka about secret employment contracts, employee bonuses and other actions that he said cost Starkey millions. Ruzicka responded that the compensation was valid due to the employees’ years of good work at the company and to ensure they did not jump to the competition.
Ruzicka on the video offers to become a consultant if Austin would keep the other employees. “I thought that making sure people were secure was for your benefit,” Ruzicka said in the film. Ruzicka said he had to combat Austin’s habit of sometimes belittling employees.
But Austin said in the video and on the witness stand Friday that he considered the payments in question — including stock sales and bonuses — to be loyalty payments from Ruzicka. He also said he believed the employment contracts were worded so employees in question could leave Starkey, work for a competitor and still be paid their regular Starkey salary for five years. When shown employment contracts, some with his signatures, Austin said he had not seen them and never signed them.
Austin testified he “absolutely never” approved any of the transactions. When Assistant U.S. Attorney Lola Velazquez-Aguilu showed Austin copies of payroll and transaction reports showing the alleged stock sales and bonuses, Austin said he had not seen them.
Prosecutors contend that Austin was shown doctored reports. The defense insists all reporting was proper and that Austin had given Ruzicka full control and signature authority over the company.
Austin said he neither heard of nor approved the forming of Archer Consulting and Claris Investments by Ruzicka and co-defendants Taylor and Hagen. The men are accused of using the firms to bilk nearly $8 million in fees from Starkey and a firm called Sonion. Austin said he never wanted Ruzicka to be distracted by getting involved in the ownership of small outside companies. Austin said he made that clear during a heated argument several years before 2010.
At the time, Ruzicka had invested $10 million of Starkey money in another hearing device company without discussing it with Austin first. Austin said he became angry and told Ruzicka he was never to buy a building or invest in another company without his direct input and authorization. Ruzicka’s involvement with Archer and Claris meant Ruzicka had learned “to lie to my face,” Austin said.
Defense counsel has claimed that the Archer and Claris information was properly recorded.