A group of former employees has sued Starkey Laboratories, owner Bill Austin, President Brandon Sawalich and former President Jerry Ruzicka, accusing them of financially hurting the hearing aid manufacturer's Employee Stock Ownership Plan.
Starkey accused in lawsuit of lax oversight of ESOP
Former employees says ESOP lost money because of financial fraud and embezzlement.
June 7, 2019 at 1:26AM
Ruzicka and other former executives were prosecuted on charges they defrauded the company of millions or benefited from their actions.
In the lawsuit, filed Monday in U.S. District Court in Minneapolis, former Starkey workers Jaime Beck, Byron Hanson and Lynn Melcher said the actions of the criminal defendants and the lack of oversight by the company, Austin and Sawalich cost the ESOP money. It also said that neither the company nor the defendants attempted to make the ESOP whole after the misconduct was discovered.
Thomas Ting, general counsel for Starkey Hearing Technologies, said in a statement that the ESOP's independent trustee, Horizon Bank, had investigated the impact of the criminal defendants' actions.
Horizon, he said, "reached a settlement to this matter with Starkey Hearing Technologies. As this is settled, the lawsuit is unnecessary and irrelevant and is simply about the plaintiffs' lawyers trying to make money."
Ruzicka and W. Jeff Taylor, former president of Starkey supplier Sonion Inc., were convicted last year on federal charges alleging they embezzled from Starkey. Ruzicka also was found guilty of defrauding the company through a complicated stock scheme worth more than $15 million.
The lawsuit also names former human resources manager Larry W. Miller, who was acquitted on embezzlement charges last year. In addition, it names Scott A. Nelson, former chief financial officer, and Jeffrey Longtain, former head of the company's Northland Hearing subsidiary, who both pleaded guilty to charges in connection with the scheme.
The lawsuit filed this week said from 2008 until the ESOP ceased in 2017, the plan had a net loss of almost $4 million, even though Starkey was profitable, with estimated revenue of up to $850 million a year.
"By stealing tens of millions of dollars from the company, these defendants stole from Starkey's owners, including the ESOP," the lawsuit said.
The lawsuit accused Austin of turning a blind eye to financial and management irregularities that he first suspected in 2006.
"Though Austin told investigators he heard rumors of financial looting as early as 2006, he failed to investigate until 2015," the lawsuit claims.
As soon as the internal investigation was completed, Austin fired Ruzicka, Nelson, Miller and Longtain. He also replaced Ruzicka with Sawalich as an ESOP trustee.
The complaint said both Sawalich and Austin had a duty to protect the ESOP beneficiaries but failed to act prudently and in the interest of the company's employee co-owners.
Austin "abandoned his fiduciary duties to the company and the ESOP entirely in order to work with Starkey's humanitarian arm," which is known as the Starkey Foundation, the lawsuit further claims.
The foundation gives away hearing aids to poor children and also is known for its star-studded fundraisers.
Dee DePass • 612-673-7725
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