Analysis of the FBI Money Laundering Probe Into Starkey Hearing Technologies

Some confusion surrounds the story we broke last Friday on the criminal money laundering probe into both Starkey Hearing Technologies and the Starkey Hearing Foundation, and this article will attempt to explain what it means for the various constituencies of Starkey Hearing Technologies.

Related coverage: Analysis of the FBI Money Laundering Probe Into the Starkey Hearing Foundation
Bill Clinton and Bill Austin fit a patient with hearing aids at a mission in Zambia in August 2013Photo: Starkey Hearing Foundation

Bill Clinton and Bill Austin fit a patient with hearing aids at a mission in Zambia in August 2013
Photo: Starkey Hearing Foundation

Since our article broke Friday morning, our inbox has been flooded with tips, and where appropriate we have forwarded them to the Minneapolis FBI field office. Interestingly, most of the tips involve not the company, but the foundation; and one thing that struck us was the number of hearing care professionals who went on hearing aid “drop and run” “missions” who were completely disgusted with what occurred. Yes, Johnny Depp & Amber Heard hung a few BTE’s in Rio for the cameras this weekend, (ummm, how were they qualified to do this?!), but the vast majority of these “missions” are not much more than glorified photo ops where the suntanned Bill Austin mugs for the camera in some exotic location, including with his BFF Bill Clinton in 2013 & 2015; almost always showing photos of a BTE dangling off the ear.

To clarify one point, although our law enforcement source confirmed the FBI’s probe into the Starkey corporate and foundation entities (“yeah, it’s a Big One“) they did not confirm either the IRS’ and/or the FDA’s involvement — They may indeed be involved, but we cannot confirm those two aspects.

▬▬► Confidential tips welcome via e-mail at Dan@Snip.Net, via messaging us on Facebook, or via our friend Kathleen Willey’s Safesite Tip Line for A Scandal A Day, and they will forward it to us.

Up until the industry consolidations of the late 1990’s the US hearing aid industry was a corroded rectum of scoundrels, mostly until the European manufacturers came in, bought out what was left (where have you gone, Electone?!), and pretty much cleaned up the mess, consolidating into the “Big Six.” However, one vestige of this sordid industry past has remained; and although we thought Bill Austin’s Starkey mostly cleaned up their act (despite the numerous reports we’ve received about the “foundation,” the abuse of their Audibel & NuEar franchisees, and our catching Starkey selling to Costco as late as May 2014 after publicly denying it), this new criminal probe tends to confirm that a tiger just can’t change his stripes: It’s the 1980’s all over again in Eden Prairie; and it’s time to flush the toilet.

Bill-Austin-Africa-Tribe-Starkey-Hearing-Foundation[At this point, your humble editor needs to add he first met Bill Austin exactly 30 years ago this month at the NHAS (now IHS) Convention at the downtown Atlanta Hilton, when Starkey wasn’t much more than a garage operation, and Bill Austin was behind the table in the booth making milkshakes in a blender. At that same convention we also had a pleasant chat with Andy Rihs of Phonic Ear/Phonak over hearing aid cosmetics at that show; and ironically he too along with his CEO & CFO were busted 26 years later in early 2011 for insider trading by Swiss authorities just before Sonova stock tanked due to the Advanced Bionics recall and shutdown.]

Now that the “pleasantries” are mostly covered, here is how we see this all playing out for the various Starkey constituencies:

  • For starters, if you use or are considering Starkey, Audibel, NuEar, or MicroTech hearing aids, don’t worry: They build good devices, and the FDA will assure that you are fully protected, just as they did for Advanced Bionics cochlear implant patients back in 2009-10 (and 3M CI patients back in 1986). Relax, and enjoy your good hearing, as you’re covered;
  • If you’re one of the 3600 or so Starkey rank-and-file employees, you too shouldn’t be seriously impacted: You’ve done nothing wrong, though you probably will soon be answering to new, better management;
  • If you’re in Starkey management and survived the palace coup so far, well, update your resumé, as a new ownership team may decide to just clean house;
  • If you’re an Audibel, NuEar or MicroTech franchisee, well, we don’t know, as it depends on who picks up the pieces when the FDA brokers the fire sale: More on this below.

From this extensive investigation of the Starkey Hearing Foundation in late July by Minnesota Public Radio, we have this tidbit:

The company values the hearing aids it provides the foundation at $250 each – a figure consistent with what German regulators reported it costs to make the device when they released a study of major hearing aid manufacturers in 2006. Several analysts say the company is eligible for taking a tax break on every device it donates to the foundation.

We think the IRS would like to know how that $250 per aid figure was derived, as the tender price to Britain’s National Health Service (NHS) is about £63 per aid, which is about US$100.

Our Forecast:

When this all goes down, the FDA will broker a sale, much as they did in 2009 when Al Mann saw the coming storm and unloaded his basket of rotten apples on Sonova [but much to Sonova’s credit, they really cleaned it up, and we strongly recommend their CI’s]. Up in the air is whether to keep the whole Starkey Hearing Technologies all intact, or whether the valuable franchise network will be split off. Here are the potential players:

  • Sonova (Phonak, Unitron, Hansaton, AB, Connect Hearing)
  • William Demant (Oticon, Bernafon, Sonic, Neurelec/Oticon Medical, plus hundreds of retail locations)
  • GN (ReSound, Beltone, Jabra, Store Nord, and Netcom)
  • Siemens/Sivantos (Siemens, Rexton, HearUSA): Unlikely, as Sivantos is still digesting their purchase
  • Widex: We reported they were in discussions with Starkey already
  • Samsung: They ordered $14 million in hearing aid chips in May; and reports are they too were in discussions with Starkey
  • Cochlear Pty: They bid $1.2 billion for Siemens back in 2009; and since they have committed to Bluetooth 4 Low Energy with Made for iPhone CI’s & BAHA’s, and since they have a decent relationship with the FDA, they may be a surprise player
  • Med-El: The Innsbruck company is privately owned & probably can’t put together the financing unless the franchise network is split off; however just as in 1996 when the FAA engineered a “reverse merger” of ValuJet into the then-tiny AirTran owned by “forklift Joe” Leonard, the FDA may engineer a similar reverse merger deal, as they too have good relations with Gaithersburg. Ingebord, call your banker
  • Amplifon: They are the largest hearing aid retailer in the world, including Miracle-Ear
  • IntriCon: They build aids for United Healthcare and Britain’s National Health Service
  • Apple, Google: They both have piles of cash and may want to jump in to the industry, especially since Starkey has a valuable patent portfolio, and some of this IP can be integrated into Google Glass and iPhones.

To see a detailed chart of who owns what in the industry, see Hearing Aid Brands Explained by our friends at Hearing Tracker.

If you are an Audibel or NuEar franchisee, you may wake up one morning to find you hit the jackpot and be transitioned to a Beltone, Miracle Ear or Connect Hearing franchise: Who knows?!

▬▬► Confidential tips welcome via e-mail at Dan@Snip.Net, via messaging us on Facebook, or via our friend Kathleen Willey’s Safesite Tip Line for A Scandal A Day, and they will forward it to us.

← Analysis of the FBI Money Laundering Probe Into the Starkey Hearing Foundation EXCLUSIVE: Starkey & Foundation, Bill & Tani Austin Under FBI, IRS Money Laundering Investigation: Firings Were Cover-Up →

About the author

Dan Schwartz

Electrical Engineer, via Georgia Tech

2 Comments

  1. Dr. Chesire
    October 15, 2015 at 2:36 pm

    Dan,

    Excellent reporting!!! Electone was a great company. Siemens bought them out and then closed the door on them. A lot of hard working Americans were out of job overnight. Several of the Electone employees are now with audifon (An Independent German Manufacturer). They still do good work.


    • Dan Schwartz
      October 15, 2015 at 3:38 pm

      I saw Audifon at #AN15, but I didn’t know they had a US beachhead — Thanks for the update!


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