Billionaire-Owned Hearing Aid Maker Faces Lawsuit Over Employee Stock Plan
Three former employees of America's largest hearing aid manufacturer, Starkey Hearing Technologies, are suing the company and a group of its current and former executives for failing to uphold their fiduciary duties tied to an employee stock ownership program.
The suit, filed in Minnesota district court on Monday, alleges that the program lost nearly $37 million, and had a net loss of almost $4 million between 2008 and 2017 when the ESOP was closed.
This suit comes a year after former Starkey president Jerry Ruzicka and a business associate were found guilty of fraud and charges tied to stealing over $15 million from the hearing aid giant.
The ESOP "suffered," this lawsuit's complaint alleges, from getting lower contributions as a result of the fraudulent theft.
Defendants named in this complaint include Starkey billionaire owner Bill Austin and his stepson and current company president Brandon Sawalich as well as former executives Jerry Ruzicka, Scott Nelson, Larry Miller, and former Starkey business associates Jeff Longtain and W. Jeffrey Taylor. Ruzicka and Taylor were convicted on charges of fraud last year, while Nelson and Longtain pleaded guilty in 2017. Miller was acquitted of all criminal charges. Sawalich and Austin were not charged in the previous criminal case; Austin appeared as a witness during that trial.
Austin, Sawalich, Ruzicka, Nelson and Miller served as fiduciaries for the company's ESOP, according to the lawsuit. Under ERISA, the federal law that sets standards for employees' retirement and healthcare plans, fiduciaries are responsible for acting in the best interest of those whose money they are managing. Forbes reported in a 2018 article about Starkey that the ESOP owned 7% of the company, while Austin owned the other 93%. The lawsuit's complaint says that the fiduciaries had a duty under ERISA to bring a derivative action to get the ESOP's allegedly stolen funds back.
When asked about the allegations in this lawsuit, Starkey general counsel Thomas Ting provided a statement explaining that Horizon Bank, an independent trustee of the ESOP, "fully investigated the impact of the actions of certain prior employees and their associate," adding that the bank reached a settlement with Starkey on behalf of the ESOP and its participants last month. "The lawsuit is unnecessary and irrelevant and is simply about plaintiff's lawyers trying to make money," Ting said in an emailed statement.
As seen in Forbes magazine.