April 24 (Bloomberg) -- Aeropostale Inc.’s former top merchandise executive struck a secret business deal with one of the clothing retailer’s largest vendors and should be convicted of fraud, federal prosecutors told a jury.
Attorneys presented closing arguments today in a two-week trial in Brooklyn, New York, over Christopher Finazzo’s business arrangement with Douglas Dey, a friend and controlling owner of South Bay Apparel Inc.
Assistant U.S. Attorney John Nowak said Finazzo, 57, cheated his company by directing about $350 million worth of orders to Dey, with whom he split profits. The actions netted Finazzo as much as $25 million over a decade, the U.S. said.
“He wanted to cover up the kickback scheme,” Nowak said before U.S. District Judge Roslynn R. Mauskopf. “Those lies are evidence of his guilt.”.
Prosecutors brought 16 charges against Finazzo, including conspiracy, mail fraud and wire fraud. The former executive faces a maximum prison term of 20 years if convicted of fraud.
Trial witnesses included the teen apparel retailer’s former chief executive officer, Julian Geiger, who oversaw a more than 14-fold increase in sales at the New York-based company. Geiger, now CEO of Crumbs Bake Shop Inc., told jurors that Finazzo had been “like a brother” and he was “incredulous” when he learned about the executive’s arrangements with South Bay.
Geiger, 67, fired Finazzo in November 2006 shortly after the company became aware of some of the partnerships. The deals were discovered through an unrelated corporate investigation that turned up an e-mail from Finazzo’s attorney listing his assets in preparation for writing a will, according to the government.
Geiger and other former employees of Aeropostale told jurors that shirts from South Bay appeared to be overpriced and Finazzo resisted efforts to change vendors.
Prosecutors played a recording of Finazzo’s termination meeting, in which Geiger and company General Counsel Edward Slezak confronted him with their findings. Geiger could be heard telling Finazzo: “My heart is broken.”
The government today played portions of the recording again in which Finazzo told the executives that the values of the assets on the list were inflated, and that he didn’t profit from his relationship with South Bay.
“He’s lying to Julian Geiger and to Edward Slezak about the values listed on the attachment,” Nowak said. “He was trying to get away. He was being terminated, and he continued to lie like he had in the past.”
When the trial began on April 9, defense lawyer Robert J.A. Zito said his client wasn’t aware he was doing anything wrong by making deals with Dey. The relationship with the vendor, a major supplier to Aeropostale, helped boost sales to $1.4 billion in 2006, Zito said.
“The government says he was controlling things. That was his job,” Zito said today in his closing argument. “He was in the business of making money for Aeropostale and he succeeded.”
In a rebuttal today, Assistant U.S. Attorney Winston Paes said Zito was suggesting “that you can skim money off the top just because the company is doing well.”
“It doesn’t work like that,” Paes said.
South Bay owner Dey pleaded guilty to a conspiracy charge in September. Aeropostale is the fourth-largest U.S. teen specialty apparel company by market capitalization. Sales at the retailer grew to $2.38 billion in 2012 from $141 million in 1998, according to the company’s financial statements.
The case is U.S. v. Finazzo, 10-cr-00457, U.S. District Court, Eastern District of New York (Brooklyn).
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