Defense attorneys in Starkey trial try to poke holes in government's case

The focus was on the defense team Tuesday at the fraud trial of former Starkey Laboratories executives as the lead FBI investigator was cross-examined and questioned about documents he had presented to the court.

Fired Starkey President Jerry Ruzicka, former human resources head Larry Miller and business associates W. Jeffrey Taylor and Larry T. Hagen are accused of embezzling from Eden Prairie-based Starkey $20 million in stock, bonuses, commissions and rebates. They have pleaded not guilty in U.S. District Court in Minneapolis.

Former Chief Financial Officer Scott Nelson and Jeff Longtain, who led subsidiary Northland Hearing, have pleaded guilty in the case.

The prosecution on Friday and Monday produced hundreds of documents to prove that the defendants made the transactions without owner Bill Austin's knowledge and then covered them up.

On Tuesday, the defense produced its own ream of documents as it tried to paint a different version and bring out discrepancies in the U.S. attorney's case while cross-examining FBI special agent Brian Kinney.

Under questioning, Kinney said there had been some mistakes in initial documents pertaining to the case, including those used to obtain search warrants.

Kinney later corrected those records, but in an early report he mistakenly wrote that Austin had a Starkey tape recording on which Ruzicka allegedly admitted in 2015 that he stole $10 million from the company. No such admission was on the tape. Instead, Kinney said, Austin had said the admission took place at a meeting at an Eden Prairie restaurant that wasn't tape recorded.

Ruzicka's attorney, John Conard, also told jurors Tuesday that the government's allegations about sham companies, faked commissions and millions in unauthorized bonuses and stock sales were false, because Austin knew and approved all financial transactions or gave Ruzicka permission to act accordingly.

Kinney, testifying for the U.S. attorney's office on Friday and Monday, explained many payroll records introduced by the prosecution, explaining how some were allegedly doctored by Miller and Nelson to hide elaborate bonuses and proceeds from Northland.

In response to claims that Ruzicka had regularly forged Austin's signature without his permission, Conard presented documents in which several Starkey executives, including current company president and Austin's stepson Brandon Sawalich, had allegedly signed Austin's name.

Another document had two different signatures for Austin on the same page. Conard noted one of them was Ruzicka's signature because Austin often told Ruzicka to sign documents for him. He also produced Ruzicka's employment contract, which he said gave Ruzicka, as company president, full signature authority for Starkey.

The defense also produced payroll records, trying to refute allegations made Friday and Monday that the reports Austin saw were not the same as what was recorded in official pay records. Conard pointed out how some payroll records do not show all compensation but all W-2 forms had correct compensation amounts. Oversight of W-2s, he said, would have fallen under authority of Austin, who was sole board member for Starkey, the largest hearing aid manufacturer in the U.S.

The defense also produced several other employment contracts in addition to the one issued to Ruzicka. He also produced documents showing Austin had approved the issuance of "Starkey shares" to top executives in the 1980s in an effort to refute Austin's assertion that his company rarely used individual employment contracts or "non-traditional" compensation. Those 1980s stock awards were not on payroll reports, Conard said in trying to refute the prosecution's claim that the company kept meticulous records that Austin reviewed annually.

Compensation was reported on several types of documents, and was regularly reported to the federal government on forms that Austin was responsible for. Even though the prosecution has said Austin was not informed of some of the transactions, Conard claimed that Austin had to have known about all forms of compensation because of his fiduciary responsibilities.

In addition, the defense tried to knock down the prosecution's assertion that Austin relied on others when dealing with computers or accessing records.

Conard produced an e-mail that Starkey's payroll manager sent to Austin's wife, Tani. In the e-mail, Tani was given full access and instructions on how to access Starkey compensation and commission records. While prosecutors said the instructions pertained to the Starkey Foundation only, the defense tried to show how attachments allowed both she and her husband access to Starkey Laboratories payroll records as well.

Dee DePass • 612-673-7725