BREAKING FROM THE STARKEY SWAMP: Former CEO Jerry Ruzicka Files Whistleblower Lawsuit Against Starkey

Former Starkey CEO Jerry Ruzicka just filed a whistleblower lawsuit, claiming owner Bill Austin and his family improperly used millions of dollars of company money, and which is the subject of one FBI investigation. Significantly revealed in the related arbitration filing is Starkey’s valuation at $1.0 billion. However, Starkey claims Jerry Ruzicka stole millions from the company, and was plotting to start a competing hearing aid company. Ruzicka is also is a target of an FBI investigation, as we documented on November 4th; and previously filed a wrongful termination lawsuit October 3rd.

Gloved FBI investigator takes a vehicle from the home of former Starkey President Jerry Ruzicka's home (Photo: Jana Shortal, KARE)

Gloved FBI investigator takes a vehicle from the home of former Starkey President Jerry Ruzicka’s home (Photo: Jana Shortal, KARE)

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From the Minneapolis Star-Tribune:

Starkey, fired president trade sharp accusations of wrongdoing

A lawsuit claims owner Bill Austin and his family of using millions of company money improperly. Starkey said Jerry Ruzicka stole millions from the company.

Starkey Laboratories’ ousted president on Friday filed a long-threatened lawsuit against the company, alleging several instances of wrongdoing by owner Bill Austin and members of his family.

Starkey’s attorney, David B. Olson, shot back that the company cannot comment on the specifics of the lawsuit but denied the allegations. In addition, “we are confident that the investigation will show that [fired president Jerry Ruzicka] abused the trust that was placed in him, by among other things, stealing millions of dollars from the company and its employees over a period of several years.”

The investigation is being conducted by the Federal Bureau of Investigation, the Internal Revenue Service and other law enforcement agencies. It came to public light in November, when FBI and IRS agents raided Ruzicka’s home, taking records, computers and a car. Ruzicka’s attorney has said his client did nothing wrong and welcomed the investigation.

Ruzicka’s lawsuit Friday claimed defamation of character and wrongful termination in retaliation for whistleblower actions he took regarding alleged wrongdoing inside Starkey that included diverting funds and falsifying tax reports. He also claimed that the terms of Starkey’s Employee Stock Ownership Plan were violated by the company, Austin and Brandon Sawalich, a company vice president and Austin’s stepson.

Ruzicka claims he was fired in retaliation for reporting “company improprieties that Austin and Sawalich were engaged in,” said Ruzicka’s attorney Marshall Tanick. The lawsuit also said Ruzicka refused “to participate in actions that he regarded, in good faith, as unlawful.”

The lawsuit, filed in Hennepin County District Court, has been expected since Ruzicka, 58, was abruptly fired in September along with five other top executives and two executive assistants. One of the executives, Keith Guggenberger, who was the company’s former chief operating officer, has already filed a wrongful termination lawsuit.

This is where it gets fun: The IRS as well as the FBI is investigating the entire Starkey swamp, as we first broke the story on September 25th, 2015.

Ruzicka’s lawsuit claims Austin used Starkey money to pay for $30 million in movie production expenses for another of Austin’s stepsons, Steven Sawalich. It further says Starkey paid Steven Sawalich’s entertainment company $20 million that was never repaid and accused Austin of falsifying paperwork to justify expense write-offs and to have the bad debt written off Starkey’s books.

The lawsuit claims Brandon Sawalich used more than $300,000 in company funds to remodel and maintain his home and also accuses him of keeping an undisclosed amount of money set aside for customer rebates.

Other allegations include Austin and his family not reimbursing the company for personal use of the company plane and Brandon Sawalich and Tani Austin, Bill Austin’s wife and the Sawalich’s mother, diverting at least $200,000 per month of company money over an unspecified amount of time to another company they own that is based in Illinois.

The lawsuit said Bill Austin is not licensed in the state of Minnesota to make ear impressions and fit hearing aids, but he did so anyway, leading to damages of at least $4.5 million. As a result, the lawsuit said, Starkey is unable to obtain professional liability malpractice insurance for Bill Austin.

This part about Austin being unlicensed is well known in the industry: The question is, why hasn’t the Minnesota Department of Health at least sent a cease and desist letter? You can search the Minnesota hearing aid dispenser licensing credentials here.

As part of his lawsuit, Ruzicka submitted a copy of his employment contract and an amendment and says he is owed $8.7 million in promised future wages and a 10 percent stake in the company.

Ruzicka, who had worked for Starkey for 38 years and was president since 1998, filed another complaint with the American Arbitration Association stating that Starkey violated a lucrative “deferred-compensation” contract and amendment. Ruzicka’s employment agreement stipulated that any disputes of this kind had to be remedied through arbitration.

Specifically Ruzicka’s arbitration filing said that under his contract, which would have expired this month, he was to receive his same salary and bonus for the next 10 years, a sum worth roughly $8.7 million. Ruzicka said he was also promised 10 percent of the company’s fair market value upon CEO Bill Austin’s disability or death or upon a change of ownership at Starkey.

The company is valued at about $1 billion, so 10 percent of that is $100 million that he gets whenever Austin becomes disabled or dies or sells,” Tanick said, adding that Ruzicka wants arbitrators to insure that his compensation and ownership agreements are not violated.

This last bit — the $1.0 billion valuation — is quite telling, as their annual sales are about $820 million. If you use an industry average price-to-earning (P/E) ratio of 24, that means their annual earnings are about $42 million, and their margin is about 5%.

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Dan Schwartz

Electrical Engineer, via Georgia Tech

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