Former Aeropostale Inc. (ARO:US) merchandise executive Christopher Finazzo conspired to secretly steer $350 million in purchase deals to a T-shirt vendor he co-owned with a friend, a U.S. prosecutor said at the start of a trial in Brooklyn, New York.
Finazzo, 57, conspired with Douglas Dey, controlling owner of South Bay Apparel Inc., to overcharge the New York-based teen clothing retailer for merchandise and pocket the profits, Assistant U.S. Attorney Winston M. Paes told jurors today during opening statements in federal court.
“Through his scheme, he was stealing from Aeropostale,” the prosecutor said in court before U.S. District Judge Roslynn R. Mauskopf. “He was not stealing from Aeropostale’s cash register. He was smarter than that.”
The scheme netted Finazzo $25 million from about 1996 to late 2006, on top of about $20 million in compensation he received from the retailer, Paes told jurors. Finazzo is being tried on 16 counts including conspiracy, mail fraud and wire fraud. The trial is expected to last three to four weeks.
Finazzo had been accused of making false statements in a report filed with the U.S. Securities and Exchange Commission because his interest in the vendor hadn’t been disclosed. Mauskopf dismissed the count today at the government’s request.
Finazzo could be sentenced to as long as 20 years in prison if convicted of a fraud charge, according to prosecutors. Dey pleaded guilty to a conspiracy count in September.
Evidence of Finazzo’s involvement with South Bay surfaced in 2006 during an unrelated internal investigation, when Kroll Inc. allegedly found an e-mail in Finazzo’s professional account from his personal attorney, according to court filings. The e-mail, which related to Finazzo’s efforts to create a will, contained a list of assets that included an interest in South Bay, according to the filing.
In November 2006, Aeropostale’s then-chief executive officer Julian Geiger and general counsel Edward Slezak confronted Finazzo with their findings and fired him, according to the filings.
Finazzo sought to prevent the government from using the e-mail from his work account as evidence during the trial on grounds of attorney-client privilege. In February, Mauskopf ruled that Finazzo had no expectation of privacy on his company e-mail. By communicating with his lawyer with it, he waived privilege, the judge said.
The exit interview, which was recorded, will be played during the trial, showing that “even as he was being fired, he was trying to protect South Bay,” Paes said.
A lawyer for Finazzo, Robert J.A. Zito, said in his opening statement that he didn’t dispute that his client directed business to Dey and shared profits from the venture.
“What we are contesting are the characterizations of the split profits,” Zito said.
Close relationships with vendors, including with South Bay, helped boost Aeropostale’s sales from $123 million in 1997 to $1.4 billion in 2006, the lawyer said. South Bay could replenish popular T-shirt styles quickly, allowing the mall-based retailer to stay on top of teen trends, he said.
“Aeropostale didn’t lose a single penny from its relationship with South Bay,” Zito said. “It made hundreds of millions from this relationship.”
Finazzo, who sat next to his lawyers in a dark suit, tie and glasses, was described by Paes as once the “second most powerful person” at the retailer. Offering an alternative view, Zito said his client was “not very sophisticated.”
“Chris Finazzo didn’t even graduate from college,” Zito said.
Finazzo was indicted in June 2010 and pleaded not guilty to the charges. He was released on $3 million bail.
The case is U.S. v. Finazzo, 10-cr-00457, U.S. District Court, Eastern District of New York (Brooklyn).
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