ANOTHER CASE FROM THE FINANCIAL FRAUD ENFORCEMENT TASK FORCE
Christopher F. Finazzo, former Executive Vice President and Chief Merchandising Officer of Aeropostale, Inc., and Douglas Dey, owner of South Bay Apparel, Inc., were charged in a twenty-eight count indictment. The charges center on a claimed kickback scheme. The indictment contains counts of conspiracy, wire and mail fraud and money laundering as to both men and, in addition, charges Mr. Finazzo with making false statements to the SEC. U.S. v. Finazzo, Case No. 10 cr 00457 (E.D.N.Y. Filed, June 11, 2010). The indictment follows investigations by the U.S. Attorneys Office for the Eastern District of New York and the SEC and was brought in coordination with the President’s Financial Fraud Enforcement Task Force.
Aeropostale is third largest teen clothing company. South Bay Apparel sold clothing to Aeropostale. From August 1996 through November 2006, Aeropostale paid over $350 million to South Bay. In connection with those transactions, Mr. Dey agreed to pay about 50% of his firm’s profits to defendant Finazzo. Approximately $14 million of those profits were paid to a company controlled by Mr. Finazzo, C&D Retail Consultants, Inc. The balance was invested in joint ventures with Mr. Finazzo, according to the indictment.
The defendants concealed their transactions from Aeropostale and its employees as part of their fraudulent scheme. Mr. Finazzo is also alleged to have falsely stated in numerous company questionnaires that he was not engaged in any related party transactions. That resulted in the company falsely reporting in filings made with the SEC that it did not engage in related party transactions.
In a November 2006 filing, Aeropostale disclosed that it fired Mr. Finazzo after it discovered he had concealed personal ownership interests in entities affiliated with South Bay. Those interests violated the company’s code of business ethics and Mr. Finazzo’s employment agreement, according to the filing.
Subsequently, the SEC issued a formal order of investigation focused on the events surrounding the termination. Mr. Finazzo then sued the SEC claiming that it breached his attorney-client privilege by obtaining an e-mail he sent to his attorney discussing the undisclosed relationships. The e-mail had been discovered by Aeropostale. The suit against the Commission was subsequently dismissed.
The criminal charges are in litigation.