Aéropostale Executive Steered More Than $350 Million in Business to a Major Supplier in Exchange for 50 Percent of Profits
Brooklyn, NY - August 20, 2014 - Christopher Finazzo, the former Executive Vice President and Chief Merchandising Officer of national teenage clothing retailer Aéropostale, Inc. (“Aéropostale”), was sentenced in federal court in Brooklyn, New York, to eight years in prison. In April 2013, Finazzo was convicted of all 16 counts of fraud and bribery, following a three-week jury trial, for directing more than $350 million in t-shirt and fleece business to South Bay Apparel Inc. (“South Bay”), a company owned by Hollywood movie producer Douglas Dey, in exchange for receiving more than $25 million in kickbacks from Dey. As part of the sentence, Finazzo was also sentenced to three years’ supervised release, ordered to forfeit more than $25 million to the government, and pay $13,690,822.94 in restitution to Aéropostale, a publicly traded company on the New York Stock Exchange. Dey pleaded guilty in September 2012 to conspiracy to violate the Travel Act through commercial bribery for his role in the scheme and was sentenced on August 6, 2014 to 42 months in prison.
The sentence was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and George Venizelos, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI).
“For over a decade, Christopher Finazzo abused his position of power at Aéropostale and betrayed the trust placed in him by the company, its investors, and its employees by lining his own pockets at his employer’s expense. To succeed in this decade-long kickback scheme, Finazzo lied on numerous disclosure forms and caused Aéropostale to make false filings with the Securities and Exchange Commission. These lies and false representations compromised the financial well-being of a publicly-traded retail company. Those who seek to commit corporate fraud by abusing their positions of trust are on notice that they will be held accountable for their crimes,” stated United States Attorney Lynch. Ms. Lynch thanked the FBI and the Securities and Exchange Commission for their assistance.
Shortly after Finazzo was hired by Aéropostale in July 1996, he and Dey entered into a fraudulent scheme whereby Finazzo directed Aéropostale’s graphic t-shirt business to South Bay in exchange for splitting South Bay’s profits with Dey. From 1996 to 2006, Finazzo caused Aéropostale to buy more than $350 million in t-shirt and fleece merchandise from South Bay, often for significantly higher prices and lower quality than was available from other suppliers. In exchange, Dey paid Finazzo more than $25 million in bribes and kickbacks, equaling approximately 50 percent of South Bay’s profits. In 2005 alone, at the peak of the business between Aéropostale and South Bay, Dey paid Finazzo more than $13 million in kickbacks. The kickbacks were paid through C&D Retail Consultants, a shell consulting corporation set up by Finazzo, and through companies jointly-owned by Finazzo and Dey.
Finazzo’s lies and omissions about his relationship with Dey on numerous disclosure forms, which he was required to complete as a senior officer of Aéropostale, caused Aéropostale to make multiple false filings with the SEC. Finazzo completely controlled Aéropostale’s business with South Bay and favored Dey and South Bay to the detriment of Aéropostale’s profit margins. For example, Finazzo refused to comply with Aéropostale’s then Chief Executive Officer Julian Geiger’s directive to place 25 percent of the t-shirts orders with overseas vendors at a significantly lower cost than what Aéropostale paid South Bay, thereby costing Aéropostale approximately $6 million.
When Aéropostale’s employees sought to lower the price of t-shirts purchased from South Bay or hold South Bay accountable for poor quality and late deliveries, Finazzo stepped in and quashed their efforts. For example, when a graphic t-shirt merchant questioned South Bay’s cost structure, Finazzo e-mailed the head of Aéropostale’s men’s division and stated, “I would like to let you know that if I hear that [the merchant] is talking trash about South Bay to other people in the company, I will not tolerate that, and I will be swift in my actions.” Similarly, when other employees questioned South Bay’s effective monopoly on the t-shirt business, Finazzo sent an e-mail to his senior staff stating, “Last night when I could not sleep I decided that as long as I’m here we will run the business as we started it with our key vendors … I will not change our vendor structure or the way we set up this business and I guess I can make that decision. I want South Bay to be the main t-shirt supplier.”
The sentence was imposed by United States District Judge Roslynn R. Mauskopf.
The government’s case was prosecuted by Assistant United States Attorneys Winston M. Paes and Claire Kedeshian.
This prosecution was the result of efforts by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets, and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants. For more information on the task force, visit StopFraud.gov.
CHRISTOPHER FINAZZO Age: 57 Garden City, New York E.D.N.Y. Docket No. 10-CR-457