Prosecutors allege defendants in Starkey embezzlement case altered documents

The FBI agent leading an embezzlement investigation against former executives of Starkey Laboratories on Monday spent hours painstakingly outlining to jurors the evidence his team had collected.

Prosecutors and special agent Brian Kinney showed jurors reams of documents they said were altered and used by some of the four defendants on trial to issue themselves millions in unauthorized bonuses, restricted stock and at least one car transfer from company owner Bill Austin.

The defense is expected to cross-examine Kinney on Tuesday in the trial before U.S. District Judge John Tunheim in Minneapolis. Fired Starkey President Jerry Ruzicka, former human resources head Larry Miller and business associates W. Jeffrey Taylor and Larry Hagen are accused of embezzling more than $20 million in fraudulent bonuses, stock transfers, commissions and kickbacks from Starkey, the largest U.S. manufacturer of hearing aids.

All four pleaded not guilty, and their lawyers have said Austin knew and approved of the financial transactions in question.

Two other fired executives, former financial chief Scott Nelson and Jeffrey Longtain, who led Starkey's Northland Hearing subsidiary, have pleaded guilty in connection with the case and are assisting the government in its prosecution.

Longtain is expected to testify Tuesday or Thursday. Nelson and Austin will testify sometime next month after the trial takes a break for the Super Bowl.

Kinney said the prosecution retrieved the documents — which included employment contracts, payroll reports and e-mails — through raids of the executives' homes and searches of company computers.

Kinney outlined evidence that prosecutors said showed fraud from 2006 to 2015. Exhibits presented to the court included $15 million worth of Northland Hearing's restricted stock that Ruzicka and Nelson illegally transferred from Austin to themselves and Longtain, the government charged.

Kinney and U.S. Assistant Attorney Surya Saxena submitted to the court copies of three checks worth a combined $7 million that Ruzicka and Nelson allegedly arranged for Starkey to deposit into investment accounts held by Ruzicka, Nelson and Longtain. Saxena showed jurors where Starkey was made to issue another $8 million to cover the tax liabilities associated with the former executives' stock scheme.

The government maintains that the three former executives had no right to Northland or its stock proceeds. The stock belonged to Starkey and Austin, prosecutors said, adding that Austin will testify that he never approved of and never knew about the stock transfer until the fall of 2015.

While the majority of the government's fraud case is in connection with the Northland restricted stock, Kinney also said the executives paid themselves inflated bonuses and kept them secret. The defense has denied that allegation.

At least once or twice a year, Austin would ask the executives for copies of the payroll reports so he could review overall compensation trends in the company.

Kinney showed jurors e-mails in which the payroll reports ultimately sent to Bill Austin for review were allegedly altered by Ruzicka, Miller or Nelson. The altered reports either reduced the stated bonuses or, in at least one case, deleted the bonus entirely.

Saxena pointed out to jurors how the bonuses on the reports sent to Austin year after year were dramatically underreported and misrepresented what was actually on the company's original payroll reports — especially for Miller.

For example, 2007 payroll reports showed Miller received a $169,280 bonus, while the report to Austin had it listed as $49,280. In 2011, Miller's bonus on the overall report was $307,427, while the report to Austin listed it as $67,424.

Monday's session was cut short because of weather concerns but is expected to continue during regular hours on Tuesday.

Dee DePass • 612-673-7725