Aeropostale Ex-Merchandising Chief Charged With Fraud

Aeropostale Inc.’s former merchandising chief, Christopher Finazzo, was accused by federal prosecutors of conspiring to overcharge the teen-clothing retailer on purchases from a vendor and sharing in the proceeds.

Finazzo, 54, acted with Douglas Dey, the owner of South Bay Apparel Inc., a company based in Calverton, New York, that sold clothing to Aeropostale, according to an indictment returned in Brooklyn, New York. Both were charged with mail and wire fraud and money laundering conspiracy. Finazzo was also charged with making a false statement in a regulatory filing.

Aeropostale, the third-biggest retailer by sales in its category after American Eagle Outfitters Inc. and Abercrombie & Fitch Co., paid South Bay more than $350 million from August 1996 to November 2006, according to the indictment. During that period, a consulting company controlled by Finazzo took in more than $14 million from South Bay.

Aeropostale had no knowledge of the scheme, according to the indictment, which was unsealed June 11 and made public today.

“Finazzo’s lies and material omissions prevented the SEC and Aeropostale’s shareholders from learning the full extent of Finazzo’s compensation from the undisclosed related party transactions,” according to the indictment.

Released on Bail

Finazzo pleaded not guilty to the charges on June 11 and was released on $3 million bail, his attorney Robert Zito said in a telephone interview. “We are hoping to get a speedy resolution with the government,” Zito said.

“The indictment of Doug Dey is unfounded,” Dey’s attorney, T. Barry Kingham, said in an e-mailed statement. “The relationship between Aeropostale and Doug Dey’s company, South Bay Apparel, was one of the most successful in Aeropostale’s history.”

Dey pleaded not guilty before U.S. Magistrate Judge Lois Bloom in Brooklyn today and was released on a $2.5 million bond.

Aeropostale spokesman Kenneth Ohashi didn’t return a call and e-mail seeking comment.

Aeropostale said it fired Finazzo in November 2006 for violating his employment contract and breaking the company’s code of ethics by failing to disclose his affiliations with South Bay. He had worked at the New York-based retailer since 1996.

SEC Suit

In March 2008 Finazzo sued the Securities and Exchange Commission, saying the agency shouldn’t be allowed to use an e-mail sent by Finazzo’s lawyer that mentioned Finazzo’s interests in “various business entities.” Finazzo argued that disclosure of the e-mail violated his rights to attorney-client privilege. The complaint was dismissed in August 2008.

The e-mail was uncovered by an outside law firm looking into travel expenses at the company, according to the suit against the SEC. The suit followed disclosure by Aeropostale that it was under investigation because of the activities of a former merchandising officer it didn’t name.

“The proper arena for plaintiff’s challenge to the SEC’s use of the Siegel Email will be the enforcement action, if any, brought by the SEC against the plaintiff,” U.S. District Judge Richard Sullivan said in the ruling.

The case is U.S. v. Finazzo, 10cr00457, U.S. District Court, Eastern District of New York (Brooklyn).