First Starkey defendant pleads guilty to tax evasion

A fired Starkey Hearing executive pleaded guilty to tax evasion in federal court in Minneapolis on Thursday and agreed to forfeit about $2.3 million in fraudulently obtained funds.

The signed plea agreement comes seven weeks after the government first charged Oregon resident Jeffrey Longtain with failing to report $105,600 in income received from two affiliates doing business with Starkey, an Eden Prairie-based hearing aid manufacturer.

Longtain, who worked for Starkey from 2006 through 2015, was Starkey's chief operating officer and president of its Northland Hearing Center subsidiary until being fired in the fall of 2015.

Longtain admitted to U.S. District Judge John Tunheim that he intentionally underreported his income on tax returns filed from 2010 to 2015.

He also admitted receiving two separate pools of money through the alleged fraudulent actions of former Starkey President Jerry Ruzicka and former CFO Scott Nelson.

Ruzicka and Nelson are accused in a separate criminal indictment of fraudulently transferring about $15 million worth of restricted stock in Northland Hearing Centers and later paying themselves and Longtain $8.2 million combined from the fraudulent proceeds in 2013. They allegedly also arranged to pay the IRS an additional $7 million to cover tax liabilities associated with the stock proceeds. Ruzicka and Nelson deny the charges.

Longtain said in court Thursday that he later figured out that the Northland stock transfer and proceeds had been orchestrated in secret and without the permission of Starkey's principal owner Bill Austin.

When asked by prosecutor Lola Velazquez-Aguilu if he intervened or tried to alert Austin to the possible fraud, he said he did not.

Longtain also admitted receiving $115,000 from Starkey, via Nelson. That payment was not reported as income to the IRS, he said.

Longtain added that the $115,000 was a padded amount meant to pay for some additional tax liabilities connected with the Northland restricted stock transfer.

When asked by Velazquez-Aguilu, Longtain agreed that Nelson had made the $115,000 payment look like it was a personal loan, in order to avoid a tax liability.

Longtain signed a plea agreement agreeing to forfeit $2.3 million in Northland stock proceeds and to pay $697,326.93 in restitution to Starkey.

Longtain will be sentenced during a Dec. 14 hearing. He faces a maximum of three years in prison and up to $100,000 in fines. However, he is expected to receive a far less stringent punishment because of his cooperation with the government.

As part of his plea agreement, which Tunheim will take under advisement, Longtain told the court that he has agreed to testify against other former Starkey executives who have been indicted on a charge of fraud.

In September 2016, the government indicted Ruzicka, Nelson, Larry Miller, former Starkey human resource manager, and two Starkey associates. The men have been charged with embezzlement and fraud in connection with the alleged Northland restricted stock transfer fraud as well for allegedly phony or elevated bonuses and commissions that were never approved by Austin. All five defendants in that separate case denied guilt and insist that Austin approved all financial transactions.

Starkey attorney Scott Neilsen said Thursday that Starkey officials were pleased that Longtain admitted his guilt, agreed to forfeit funds and acknowledged publicly that Austin was not aware of the alleged frauds.

Dee DePass • 612-673-7725