Starkey judge says defense attorneys will be able to question Austin on personal matters

The judge overseeing the Starkey Laboratories fraud case ruled Wednesday that defense attorneys can question company owner Bill Austin about his personal life and character, a tactical win for the four men accused of crimes.

The defendants in the $20 million fraud case have argued that they only performed financial transactions that Austin had requested. On trial are former Starkey President Jerry Ruzicka; Larry Miller, Starkey's former human resources chief; and business associates W. Jeffrey Taylor and Lawrence T. Hagen. All four men have pleaded not guilty.

During witness questioning that began three weeks ago, attorneys for the defendants also repeatedly referred to alleged previous wrongdoing by Austin. They argued in court that evidence for some of his actions can be found in the wrongful termination case that Austin settled with his ex-wife for millions in the late 1990s.

The defense has accused Austin of a host of misdeeds including tax fraud, knowingly donating defective hearing aids to overseas charities and dispensing hearing aides in the United States without a license.

The accusations have made prosecutors bristle. They argued in a motion filed earlier this week that the judge should limit defense cross-examinations to topics directly relevant to this case and stop the defense from using witness questions as a chance to accuse Austin of criminal activity.

Prosecutors who are trying the case in the U.S. District Court in Minneapolis insist that Austin is a victim.

The defense "is trying to paint Mr. Austin as dishonest," assistant U.S. prosecutor Lola Velazquez-Aguilu told the judge during arguments Tuesday.

John Conard, who is representing Ruzicka, said a full discussion of Austin's "impeachable" character and past actions was necessary to mount an effective defense.

U.S. Chief Judge John R. Tunheim said Wednesday that defense attorneys will be able to question Austin about his ex-wife's wrongful termination settlement, issues with tax filings and allegations that he fit people with hearing aids without a license. Tunheim said they also could bring up those issues with third-party witnesses, but only if those witnesses had direct knowledge of any alleged transgressions.

As for discussing the matters in court, that's "fair game," Tunheim said. "These matters should be raised with Mr. Austin, and can be and should be, because they are relevant evidence for [character] impeachment. As to third parties … if they testify concerning [Austin's] character, for example, or his truthfulness, then these matters are [also] fair game" for the defense to raise.

Tunheim cautioned defense counsel not to infer that Austin committed a crime, because he was never charged with one.

As part of the Starkey trial, the government has charged four former Starkey executives and two business associates of helping to steal $20 million from Starkey and Austin, the majority owner of the hearing aid manufacturer.

Scott Nelson, a former chief financial officer, and Jeff Longtain, a former Starkey subsidiary president, have pleaded guilty. Longtain has already testified. Nelson is expected to take the stand later this month.

Austin is expected to take the stand Thursday or Friday.

Christian Nielsen, the CEO of Starkey's longtime parts-supplier Sonion, testified Tuesday and Wednesday that he believes Ruzicka and Taylor siphoned funds from Denmark-based Sonion that were meant for Starkey and Sonion.

Prosecutors accuse the men of using a series of fraudulent commissions, rebates and pricing discounts to bilk the two companies out of more than $7 million.

The government contends the two created "sham" supply firms called Archer Acoustics and Archer Consulting. Nielsen said Sonion officials thought the Archer firms were owned by Starkey and were "surprised" to learn in 2015 that the co-owners were actually Taylor and Ruzicka.

Nielsen said Sonion would not have paid significant commissions and rebates or given discounts to the companies if it had known they were not Starkey subsidiaries. About 15 percent of Sonion's product sales come from Starkey, so discounts for Starkey make sense.

The Sonion CEO also said Taylor's employment contract expressly forbid him from creating an outside business that would compete with Sonion, and that the pricing structure that Taylor arranged undermined and competed with Sonion.

The government contends that Ruzicka and Taylor pocketed all Archer product sales commissions, rebates and discounts instead of directing all proceeds to Sonion and Starkey.

Nielsen said Sonion's board investigated and then fired Taylor in November 2015 after finding documents on his computer that allegedly revealed the Archer ownership scam.

Taylor's attorney Bill Mauzy questioned Nielsen Wednesday, trying to point out a lack of knowledge about Sonion's pricing and sales practices. Nielsen admitted that he had never visited Taylor's Sonion U.S. office in Minnetonka.

While the government attempted to show jurors that secrecy prevailed around the Archer companies, Mauzy and his co-counsel Casey Rundquist pointed out state filings, e-mails, parts orders and other documentation that seemed to disclose Archer's true ownership as early as 2011.

Mauzy, Rundquist and Conard all sought to present documents as evidence showing that Austin gave Ruzicka permission to create subsidiaries on behalf of Starkey. The defendants allege that Austin benefited financially from each transaction now in question.

Dee DePass • 612-673-7725