The scandal that continues to rock Starkey Hearing Technologies started with a small betrayal.
In July 2015, an employee at the nation's largest hearing aid manufacturer was approached by the outgoing president with a proposal: Come work at his new firm. But instead of joining the still-secret venture, which would compete with Starkey, the employee went to Starkey owner Bill Austin and spilled the beans, according to federal investigative records.
That confession kicked off an aggressive internal investigation that allegedly uncovered even greater secrets and ultimately resulted in the firing of company president Jerry Ruzicka, a purge of employees loyal to him and criminal indictments of Ruzicka and two other Starkey executives.
Ruzicka and other defendants have pleaded not guilty to the charges, which include allegations that Ruzicka used his position to embezzle more than $13 million through fraudulent stock transactions, unearned commissions and fake consulting fees. Ruzicka's attorney, John Conard, questioned the tactics used by Starkey's investigators and maintains his client acted legally.
The controversy has been a major distraction for Starkey, which is now embroiled in several lawsuits involving former employees who have accused Austin and his stepson, Starkey executive Brandon Sawalich, of improper and illegal business practices. Industry analysts say the investigation and resulting publicity have made the company vulnerable to its competitors, which are trying to boost their market share in the highly competitive business.
Many former executives and defense attorneys are puzzled by Austin's willingness to air his dirty laundry in public. Despite the magnitude of the alleged crimes, attorneys note that Austin was under no obligation to report the suspected theft to the authorities. In fact, several attorneys who handle internal investigations involving corporate misconduct said they have advised most of their clients to cut private deals instead of taking cases involving employee theft to prosecutors.
"You don't want to be associated with fraud — even if you're a victim," said Minneapolis attorney Chris Madel, a former federal prosecutor.
A Starkey spokesman said Austin felt compelled to act.