Former Starkey President Sentenced In Massive Fraud Scheme Perpetrated Against Starkey Laboratories
Jerome Ruzicka, 62, was sentenced today in United States District Court in Minneapolis by Chief Judge John R. Tunheim to 84 months of federal prison. Ruzicka and co-defendant W. Jeffery Taylor, 57, were convicted on March 3, 2018, of charges related to stealing more than $15 million from the Eden Prairie-based Starkey Laboratories, Inc. (Starkey) and its principal owner William F. Austin, as well as one of Starkey’s suppliers, Sonion. Chief Judge John R. Tunheim presided over the trial, which lasted nearly eight weeks, in Minneapolis, Minnesota.
Taylor and defendants, Jeffery Longtain, 59, and Scott A. Nelson, 60, will be sentenced on December 20, 2018, by Chief Judge John Tunheim for their roles in the fraud scheme. Longtain pleaded guilty on April 20, 2017, to a criminal information charging him with one count of making and subscribing a false return. Nelson pleaded guilty on December 19, 2017, to a criminal information charging him with one count of conspiracy.
United States Attorney Erica H. MacDonald, announcing the sentencing, said, “The defendant served as the President of Starkey Laboratories and had the confidence and trust of the company’s owner and its employees. Mr. Ruzicka abused that trust when he stole millions of dollars through a brash and complex fraud scheme. The sentence imposed today marks the end to a long and meticulous investigation and trial.”
"It is unfortunate that Ruzicka misused his position of trust over a period of years to steal millions from a company that does so much to give the gift of hearing to so many people in need," said Special Agent in Charge Jill Sanborn of the FBI Minneapolis Division. "Corporate fraud has far-reaching negative effects on so many institutions and individuals and that's why the FBI continues to work tirelessly with our criminal justice partners to detect corporate fraud and hold those responsible to account for their crimes."
“IRS Criminal Investigation, along with the U.S. Attorney’s Office and other law enforcement agencies, will continue to investigate individuals who misuse their position of trust and authority within their corporations. As all financial transactions leave a trail, IRS Criminal Investigation special agents used their accounting skills and expertise to analyze the complex financial transactions made by the defendant. The sentencing of this individual should serve as a deterrent to those who might contemplate similar fraudulent actions,” stated Special Agent in Charge Gabriel Grchan of the IRS Criminal Investigation Chicago Field Office.
"Today's sentence illustrates that regardless of your economic status, financial fraud on any level is still a crime, and criminals will be held accountable for their actions. Postal Inspectors will continue to protect the integrity of the U.S. Postal Service and aggressively investigate those cases where the U.S. Mails are used to defraud individuals and businesses of money and property," said Lesley Allison, (Acting) Postal Inspector in Charge for the Twin Cities Field Office, Denver Division.
As proven at trial, between 2006 and September 2015, Ruzicka and Taylor worked together to embezzle and misappropriate money and business opportunities belonging to Starkey and Sonion, a major supplier of hearing aid components to Starkey. The defendants, using their leadership positions, 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 defendants and others.
For example, as proven at trial, Ruzicka and Taylor controlled a sham entity, Archer Acoustics. Taylor falsely represented to Sonion this entity was a Starkey affiliate, thereby securing Starkey’s discounted pricing on hearing-aid components for Archer Acoustics. 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 related to Starkey’s retail affiliate, Northland Hearing Centers. The purpose of Northland was to acquire and operate retail hearing aid establishments. In 2013, after awarding themselves restricted stock in Northland, Ruzicka and Nelson paid themselves and Longtain approximately $15 million in exchange for terminating the restricted stock grants.
As proven at trial, in 2014, Ruzicka additionally 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 Ruzicka’s 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.
When some details of the scheme were discovered in September 2015, Ruzicka was terminated by Starkey.
This case was the result of an investigation conducted by the FBI, Criminal Investigation Division of the IRS, and the United States Postal Inspection Service.
Assistant United States Attorneys Benjamin Langner and Surya Saxena, and former Assistant United States Attorney Lola Velazquez-Aguilu prosecuted the case.
JEROME C. RUZICKA, 61
- Mail fraud, 4 counts
- Wire fraud, 3 counts
- Tax fraud, 1 count
- 84 months imprisonment
- 1 year supervised release
- Court will issue a restitution order