Days 2 And 3 of Starkey Executives’ Embezzlement Trial: Computer Searches, FBI Testimony, Brady Violation

Days 2 And 3 of Starkey Executives’ Embezzlement Trial: Computer Searches, FBI Testimony, Brady Violation

Day 2 coverage: Starkey witness says computer searches found questionable documents

Day 3 coverage: Starkey trial continues with FBI testimony
FBI and IRS agents testified about evidence from seized documents; Prosecutor commits Brady Rule violation.

From the Day 2 coverage:

Two Starkey Laboratories IT managers got the surprise of their careers in 2015 when the company’s owner ordered them to search co-workers’ computers for evidence that the then-company president, Jerry Ruzicka, allegedly was plotting to start a rival hearing aid company and recruit Starkey employees.

Robert Duchscher, Starkey’s chief information technology officer, told a federal jury on Thursday that what they found instead were several questionable documents, including a W-2 form showing that the company’s then-chief financial officer, Scott Nelson, had earned $4 million in 2014.

“That was not normal for any employee at Starkey,” Duchscher said.

We received an anonymous tip at Dan@Snip.Net on Thursday that stated in part, “After 12 years Starkey former CIO Rob Duchscher “resigned” from Starkey in about March 2017 and continued ‘Starkey ways’ at another company nearby. Anyone in business knows a CIO is closely involved with their COO, CFO and CEO…

There were other parts to the tip which we will not divulge; but this should have come out in Duchscher’s testimony or cross–examination, as this reporting does not contain this important detail. Continuing the Day 2 coverage:

The discovery of the W-2 led to a call to the Federal Bureau of Investigation that resulted in a deeper investigation of Nelson and Ruzicka and their business practices and charges that they were part of a $20 million embezzlement scheme.

Nelson has pleaded guilty to conspiracy charges and is set to testify later in the trial. The trial on fraud and theft charges against Ruzicka and three alleged co-conspirators — Larry Miller, Starkey’s former human resources chief and business associates W Jeff Taylor and Larry Hagen — began Wednesday in U.S. District Court in Minneapolis and is expected to last up to six weeks.

In opening statements Wednesday, attorneys for the defendants said their clients dispute all the charges and accused the company’s owner, Bill Austin, of wrongdoing.

Balance of Day 2 coverage here.

Day 3 coverage: Starkey trial continues with FBI testimony

FBI and IRS agents testified about evidence from seized documents.

Prosecutors went over a slew of documents and computer files with federal agents on Friday, showing how complicated the $20 million embezzlement case is against two former Starkey Laboratories executives and two of their business associates in US District Court in Minneapolis.
[:] The defendants have denied all charges, and their attorneys have said Starkey’s owner, Bill Austin, either knew and approved of their actions, or gave the executives in question the authority to do certain functions without his permission.

Allegations in the case include the creation of sham companies, fake invoices, and secret payments of commissions, rebates and bonuses. The majority of the theft allegations, however, center on the transfer and sale of restricted stock in a Starkey subsidiary called Northland Hearing Centers.

Two other fired executives — former Chief Financial Officer Scott Nelson and former Northland President Jeff Longtain — have pleaded guilty in connection with the stock transfers and are both expected to testify in the trial.

On Friday, the third day of the trial, Federal Bureau of Investigation and Internal Revenue Service agents went over some of the evidence collected in the case, including an allegedly forged signature.

AUSA Surya Saxena
Photo courtesy Duluth News Tribune

Assistant US Attorney Surya Saxena and FBI special agent Brian Kinney showed jurors signatures on documents for Northland that were supposed to be Austin’s. While both signatures were his name, they were markedly different. Kinney surmised the later signature was forged, allowing the defendants to later steal $15 million in restricted stock from Austin.

The first document Kinney showed jurors was an Austin signature from 2002, when Austin first set up a subsidiary called Northland US

The second document showed a later “Austin” signature that was used to transfer a loan guarantee by Bill Austin from Starkey’s Northland US to a new entity called Northland Hearing Centers LLC, prosecutors said.

“This signature, in my investigation, does not resemble the signature of Bill Austin,” ­Kinney testified at the trial in US District Court before Judge John R ­Tunheim.

However, a new wrinkle arose at the trial, namely prosecutorial misconduct by the US Attorney’s office dealing with Brady exculpatory evidence submission violation(s).

Continuing the Day 3 coverage:

Ruzicka’s attorney, John Conard, however, leveled a discovery complaint against prosecutors on Friday. Conard told the judge that he had just learned that Nelson told prosecutors during interviews two weeks ago that Ernst & Young auditors allegedly discussed the Northland Hearing stock transfers with Austin in 2006. Conard complained that prosecutors didn’t immediately disclose that critical information to the defense or the court until late Wednesday.

It should have been disclosed immediately after the interview, he said, [as] such information would have potentially changed the opening statements for all four defendants, all of whom insist that Austin knew about Northland and other actions that the government has called ­fraudulent.

Chief Judge John R Tunheim

Tunheim said he would take the information under advisement before deciding if the prosecution had failed to observe a key [Brady violation] rule in the discovery process. (more)

← Break Out the Popcorn: Starkey Judge Says Defense Attorneys Will be Able to Question Bill Austin on "Character" Trial Starts in $20 million Starkey Labs Embezzlement Case Against Four Former Execs →

About the author

Dan Schwartz

Electrical Engineer, via Georgia Tech

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