April 26 (Bloomberg) -- Aeropostale Inc.’s former top merchandise executive was convicted of defrauding the clothing retailer by striking illegal deals with a vendor that prosecutors said enriched him by as much as $25 million.
Christopher Finazzo, 57, was found guilty of 14 counts of mail fraud and one count each of conspiracy and wire fraud yesterday by a federal jury in Brooklyn, New York.
Prosecutors alleged the former executive steered $350 million worth of business to a supplier controlled by a friend. Aeropostale overpaid for the merchandise and Finazzo and his friend shared the revenue, the government alleged. The former executive faces a maximum sentence of 20 years in prison on each of the fraud counts.
“Christopher Finazzo had a great job that paid him millions of dollars, but this honest living was apparently not enough to satisfy his greed,” Brooklyn U.S. Attorney Loretta Lynch said in a statement yesterday. “As today’s verdict shows, we will vigorously pursue corporate fraudsters who double-deal to enrich themselves and bring them to justice.”
In a trial before U.S. District Judge Roslynn R. Mauskopf, the government accused Finazzo of running an illegal scheme for about a decade with Douglas Dey, controlling owner of South Bay Apparel Inc., based in Calverton, New York. Dey pleaded guilty to a conspiracy charge in September and hasn’t been sentenced.
Current and former executives of the teen-oriented retailer, including ex-Chief Executive Officer Julian Geiger, testified for the prosecution. Geiger, who oversaw a more than 14-fold increase in sales at the New York-based company, told jurors that Finazzo had been “like a brother” and he was “incredulous” when he learned about the arrangements with South Bay.
Geiger, 67, fired Finazzo in November 2006 shortly after the company became aware of the deals. The arrangements violated securities regulations because they hadn’t been disclosed to investors, Aeropostale general counsel Edward Slezak told jurors in his testimony.
During the trial, prosecutors played a recording of Finazzo’s termination meeting, in which Geiger and Slezak confronted him with their findings. In the recording, Geiger could be heard telling Finazzo, “My heart is broken.”
Robert J.A. Zito, Finazzo’s lawyer, said during opening arguments April 9 that his client wasn’t aware he was doing anything wrong by making deals with Dey.
The relationship with the vendor, a major supplier of Aeropostale’s graphic T-shirts, helped boost the retailer’s sales to $1.4 billion in 2006, Zito said in his opening statement.
On the Aeropostale website, men’s graphic T-shirts printed with logos and other designs were listed as being regularly priced at as much as $29.50 each.
Zito declined to comment on the verdict. Finazzo, dressed in a dark suit and patterned tie, gave no emotional response when the verdict was read. He embraced family members in the courtroom after the jury was dismissed.
The jury of nine women and three men found that Finazzo was guilty because he prevented Aeropostale from seeking lower-price shirts and improving its profit. They rejected another basis for the verdict proposed by the government that Finazzo had deprived the retailer of money.
Jurors will return April 29 to hear evidence on whether Finazzo should be ordered to forfeit any assets.
In closing arguments on April 24, prosecutors said Finazzo, who was paid about $20 million by Aeropostale over his 10 years of employment.
Assistant U.S. Attorney Winston Paes told jurors that Zito was suggesting “you can skim money off the top just because the company is doing well.”
“It doesn’t work like that,” Paes said.
Aeropostale is the 10th-largest mall-based specialty apparel retailer in the U.S. 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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