Ex-Aeropostale Executive Gets 8 Years for Kickback SchemeChristie Smythe
A former Aeropostale Inc. executive who helped guide the company’s success in the early 2000s as a teen-oriented specialty retailer was sentenced to eight years in prison for secretly directing hundreds of millions of dollars in supply orders to a friend in exchange for kickbacks.
Christopher Finazzo, Aeropostale’s former chief merchandise officer, was sentenced today in federal court in Brooklyn, New York, for conspiracy, wire fraud and 14 counts of mail fraud related to the company’s decade-long relationship with South Bay Apparel Inc., a supplier of graphic T-shirts and fleece products.
Finazzo, 58, was accused of directing as much as $350 million in orders to South Bay over the course of the arrangement, rebuffing requests from the company’s chief executive officer to find cheaper sources. Finazzo and Douglas Dey, the controlling owner of the Calverton, New York-based supplier, split tens of millions of dollars in profits from the scheme, prosecutors said.
“Mr. Finazzo engaged in a brazen betrayal of Aeropostale for more than a decade” and showed a “breathtaking display of greed and hubris and a stunning abuse of executive power,” U.S. District Judge Roslynn R. Mauskopf said today in court.
Dey, who pleaded guilty to a conspiracy charge in 2012, was sentenced this month to 3 1/2 years in prison. Along with running the clothing supply company he helped produce movies including “Blue Valentine.”
The scheme netted Finazzo $25 million from about 1996 to late 2006, on top of at least $14 million in compensation he received from the retailer, prosecutors said.
“This fraudulent kickback scheme was concocted” with Dey “right from the beginning,” Assistant U.S. Attorney Winston Paes said today. “Aeropostale had no chance to receive a fair bargain.”
Julian Geiger, the CEO who oversaw a more than 14-fold growth in revenue at Aeropostale from the late 1990s through the early 2000s, told jurors during the trial that Finazzo had been “like a brother” and he was “incredulous” when he learned about the arrangement with the supplier.
The CEO, who left in 2010 and became the top executive of now-closed Crumbs Bake Shop Inc., is returning to the New York-based clothing retailer amid hopes he can turn it around after a recent slump in sales.
The company suffered six straight quarters of losses and in April said it would close about 125 of its P.S. kids-focused stores, cutting about 100 jobs. Aeropostale rose the most in almost 12 years this week when it announced Geiger’s return.
Finazzo worked at Aeropostale from 1996 until he was fired in November 2006. Prosecutors played a recording during the trial of a meeting in which Geiger and the company’s then-general counsel Edward Slezak confronted Finazzo with their findings. In the recording, Geiger could be heard telling Finazzo, “My heart is broken.”
Evidence of Finazzo’s involvement with South Bay surfaced during an unrelated internal investigation, when Kroll Inc. found an e-mail in Finazzo’s professional account from his personal attorney, according to court filings. The e-mail contained a list of assets that included an interest in South Bay, according to the filing.
Defense lawyers had argued that Finazzo didn’t know he was doing anything wrong by making the deal with Dey. In papers filed with the court, the lawyers said Finazzo didn’t intend to deprive Aeropostale of money. The retailer still made a profit on the shirts, they said.
Finazzo’s lawyer, Robert Zito, said after the hearing that his client plans to appeal the conviction and sentence.
Mark P. Rankin, a Tampa, Florida, white-collar defense lawyer who isn’t involved in the case, said in a phone interview that the crime seemed remarkable because it involved an individual so high in the company.
“You’re lying to your employer and costing them money and putting it into your pocket,” he said. “It’s a pretty simple scheme when you boil it down.”
In court, Zito told the judge that South Bay supplied only a portion of Aeropostale’s sales and that Finazzo performed well in his position overseeing all of the retailer’s merchandise and “very well could have become the chief executive officer of Aeropostale or some other retail company.”
Finazzo was also ordered to forfeit more than $25 million to the government and pay $13.7 million in restitution to Aeropostale.
The case is U.S. v. Finazzo, 10-cr-00457, U.S. District Court, Eastern District of New York (Brooklyn).