Federal Jury Finds Three Defendants Guilty in $300 Million Nationwide Telemarketing Fraud Scheme Targeting the Elderly
United States Attorney Andrew M. Luger today announced a federal indictment charging JEROME RUZICKA, SCOTT NELSON, LAWRENCE MILLER, JEFFREY TAYLOR, and LAWRENCE HAGEN with conspiring to steal more than $20 million from Eden Prairie-based Starkey Laboratories, Inc. (Starkey) and its principal owner William F. Austin. The defendants are expected to make initial appearances in U.S. District Court in Minneapolis later this week.
“This indictment describes a massive and long running fraud scheme against a corporation by those in positions of trust,” said U.S. Attorney Luger. “The defendants carried out a complex scheme to accomplish a simple goal: to embezzle funds for their own benefit. Our federal law enforcement partners at the FBI, IRS, and U.S. Postal Inspection Service conducted a thorough investigation that exposed the defendants’ greed and abuse of trust.”
“The charges today demonstrate an unrelenting effort by the FBI and our law enforcement partners to bring to justice those who are involved in corporate fraud schemes,” said FBI Special Agent in Charge for the Minneapolis Division Richard T. Thornton. “The FBI will continue to aggressively investigate business executives and others who misuse their positions for personal enrichment.”
“The indictment of these executives alleges the misuse of their positions of trust within their corporations,” said SAC Shea Jones IRS Criminal Investigation of the St. Paul Field Office. “High-ranking corporate officials hold positions of trust not only in their companies but also in the eyes of the public. That trust is broken when such officials abuse their power and commit crimes.”
“Postal Inspectors take very seriously their mission to deter the illegal use of the mail for any criminal activity,” said Postal Inspector in Charge, Craig Goldberg. “We are committed to working together with our law enforcement partners to identify, investigate and bring to justice those who would attempt to mask their criminal activity through the use of the mail.”
According to the indictment, between 2006 and September 2015, the defendants conspired to embezzle and misappropriate money and business opportunities belonging to Starkey and Sonion, a major supplier of hearing aid components to Starkey. The co-conspirators deployed various tactics to steal from Starkey, including controlling a complicated web of sham companies and dummy entities, surreptitiously awarding themselves restricted stock in Starkey’s retail affiliate, and embezzling money from the company by causing payments to be made by Starkey for the benefit of the co-conspirators and others.
According to the indictment, in 2006, RUZICKA and TAYLOR created a sham company called, Archer Consulting. RUZICKA caused Starkey to pay Archer Consulting “commission” payments for purported sales of hearing aid components from Sonion, where TAYLOR served as president. In 2010, RUZICKA and TAYLOR changed the description of the fraudulent payments from “commissions” to “consulting fees.” Thereafter, RUZICKA caused Starkey to begin paying consulting fees to Archer Consulting of $75,000 per month. Between 2006 and 2015, RUZICKA and TAYLOR stole approximately $7,650,000 through their sham company.
According to the indictment, RUZICKA, TAYLOR and HAGEN controlled two dummy entities, Claris Investments and Archer Acoustics. TAYLOR falsely represented to Sonion that these entities were Starkey affiliates, thereby securing Starkey’s discounted pricing on hearing-aid components for Claris and Archer Acoustics. RUZICKA, TAYLOR, and HAGEN, used their entities to purchase the discounted products that they later re-sold to other manufacturers to obtain illicit profits. At times, the illicit profits came in the form of fraudulent commissions and rebates. The defendants obtained at least $600,000 in profits, commissions and rebates by fraudulently leveraging Starkey’s purchasing power for their own benefit.
Another facet of this scheme was related to Starkey’s retail affiliate, Northland US, LLC, which Austin created in 2002. He was the sole owner. The purpose of Northland LLC was to acquire and operate retail hearing aid establishments. In 2006, without Austin’s knowledge, RUZICKA and NELSON surreptitiously transferred Northland LLC’s assets to a new entity they controlled, Northland Hearing Centers, Inc. They forged Austin’s signature to complete the transfer of assets, later awarded themselves restricted stock, and ultimately paid themselves and another individual approximately $15 million in exchange for terminating the restricted stock grants.
According to the indictment, RUZICKA, NELSON and MILLER also abused their positions of authority as Starkey executives to embezzle money and fraudulently obtain benefits from Starkey. RUZICKA awarded himself and other co-conspirators hidden bonuses that were concealed from Austin by falsifying compensation reports.
For example, according to the indictment, in 2014, RUZICKA embezzled $200,000 from Starkey under the guise of “officer’s insurance.” He used those funds to pay his state and federal personal income taxes. RUZICKA also stole a 2011 Jaguar automobile that Starkey purchased for his use at a cost of $119,188.77. Starkey paid the fees, insurance premiums, and other costs associated with the automobile. Nevertheless, in July 2015, RUZICKA transferred ownership of the car from Starkey to himself by signing the title as both representative of the seller and also as the buyer. He did not pay Starkey for the vehicle, nor was it reported as a taxable benefit.
According to the indictment, NELSON used more than $200,000 in Starkey funds to purchase a condominium so that he could carry on a clandestine personal relationship with a Starkey employee. He further stole $225,000 to replenish his personal investment account after he bought a home in Prior Lake, Minn. To conceal this theft, NELSON prepared a phony “promissory note” to disguise this illicit payment as a loan from Starkey. He never reported the “loan” on Starkey’s loan register and has made no payments on the “loan.”
In total, RUZICKA, NELSON, MILLER, TAYLOR and HAGEN are alleged to have conspired to steal more than $20 million from Starkey and Sonion.
When some details of the scheme were discovered in September 2015, RUZICKA, NELSON and MILLER were terminated by Starkey. TAYLOR was also terminated by Sonion when Sonion became aware of the fraud.
This case is the result of an investigation conducted by the FBI, Criminal Investigation Division of the IRS, and the United States Postal Inspection Service.
Assistant U.S. Attorneys Benjamin Langner and Lola Velazquez-Aguilu are prosecuting the case.
JEROME C. RUZICKA, 59
SCOTT A. NELSON, 58
Prior Lake, Minn.
W. JEFFREY TAYLOR, 55
LAWRENCE W. MILLER, 63
LAWRENCE T. HAGEN, 63
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United States Attorney’s Office, District of Minnesota: (612) 664-5600
The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.