Photo: Wikimedia Commons
Photo: Wikimedia Commons
September 22, 2016 06:08 PM
Five executives have been charged with conspiring to steal more than $20 million from Eden Prairie-based Starkey Laboratories, Inc., and its principal owner.
Fifty-nine-year-old Jerome Ruzicka of Plymouth, 58-year-old Scott Nelson of Prior Lake, 55-year-old W. Jeffrey Taylor of Cologne, 63-year-old Lawrence Miller of Chanhassen and 63-year-old Lawrence Hagen of Minnetonka are all facing multiple charges.
U.S. Attorney for Minnesota Andy Luger called it a “massive and long-running” fraud scheme aimed to embezzle funds for their own benefit.
According to the indictment, the executives conspired to embezzle from Starkey and Sonion from 2006 to September 2015. Starkey is a hearing aid manufacturer, and Sonion is a major supplier of hearing aid components.
Prosecutors say the defendants used a variety of methods to steal from the companies, including controlling a complicated web of sham companies and dummy entities, awarding themselves restricted stock in Starkey’s retail affiliate, and embezzling from the company.
"It's exceptional to have a scheme that is as elaborate, persistent, as lucrative as it's been," says Paul Vaaler, a professor in the Carlson School of Management and an expert in corporate governance. Vaaler says it would be more difficult for such a long-running scheme to happen in a publicly-held company where there are more government regulations and audit requirements. "I think there are fewer safeguards in private, closely-held companies, family companies," he says. "We rely more on informal mechanisms of governance to minimize this type of alleged fraud."
When the scheme was discovered in September 2015, Ruzicka, Nelson and Miller were fired from Starkey, and Taylor was fired from Sonion. Hagen worked with Prism Hearing Solutions.
The FBI, IRS and U.S. Postal Inspection Service were all involved in the investigation, and the FBI conducted searches at multiple homes during the investigation.
Starkey Hearing Technologies released a statement Wednesday after the indictment was announced:
“To say that we’re shocked by the betrayal and breach of trust described in today’s federal grand jury indictments would be an understatement. They describe a web of criminal activity and concealment among former top executives - who used forged signatures, fake invoices, fictitious vendors and falsified pay records to steal from the company and its founder. That description is in marked contrast to our long-held values and those of our separate foundation, the mission of which is to provide free hearing aids and the priceless gift of hearing to some of the world’s poorest people.
“Today’s indictments are the result of a year-long federal criminal investigation. As the victim, we have been cooperating with the government and will continue to do so.
“While there undoubtedly will be other developments in this matter as the prosecutions run their course, we will continue to be focused on our business, our customers and our core mission. After nearly 50 years, the 4,800 members of the Starkey family remain grateful for the opportunity to bring the gift of hearing to those in need.”
Here’s a breakdown of the charges:
Fifty-nine-year-old Jerome Ruzicka of Plymouth, who is the former company president of Starkey, has been charged with 16 counts of wire fraud, six counts of mail fraud, one count of conspiracy to commit mail fraud and wire fraud, two counts of conspiracy to commit money laundering and four counts of financial transactions involving fraud proceeds.
Fifty-eight-year-old Scott Nelson of Prior Lake, who was the Chief Financial Officer of Starkey, has been charged with one count of conspiracy to commit mail fraud and wire fraud, two counts of mail fraud, two counts of wire fraud and one count of financial transactions involving fraud proceeds.
Fifty-five-year-old W. Jeffrey Taylor of Cologne, who was the vice president of sales at Sonion, has been charged with one count of conspiracy to commit mail fraud and wire fraud, four counts of mail fraud, 10 counts of wire fraud, two counts of conspiracy to commit money laundering, and four counts of financial transactions involving fraud proceeds.
Sixty-three-year-old Lawrence Miller of Chanhassen, who was the senior vice president of human resources for Starkey, has been charged with one count of conspiracy to commit mail fraud and wire fraud and four counts of wire fraud.
Sixty-three-year-old Lawrence Hagen of Minnetonka, who is the founder and Chief Technology Officer of Prism Hearing Solutions, has been charged with one count of conspiracy to commit mail fraud and wire fraud, three counts of wire fraud and one count of conspiracy to commit money laundering.
Updated: September 22, 2016 06:08 PM
Created: September 21, 2016 04:44 PM
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