United States v. Finazzo, 10-CR-457 (RRM) (RML)

Decision Date01 August 2014
Docket Number10-CR-457 (RRM) (RML)
CourtU.S. District Court — Eastern District of New York
PartiesUNITED STATES OF AMERICA, v. CHRISTOPHER FINAZZO and DOUGLAS DEY, Defendants.

UNITED STATES OF AMERICA,
v.
CHRISTOPHER FINAZZO and DOUGLAS DEY, Defendants.

10-CR-457 (RRM) (RML)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

August 1, 2014


MEMORANDUM & ORDER

ROSLYNN R. MAUSKOPF, United States District Judge.

Defendants Christopher Finazzo and Douglas Dey were convicted in connection with a kickback scheme perpetrated at the expense of Finazzo's former employer, Aéropostale. Dey pled guilty to one count of conspiracy to violate the Travel Act, in violation of 18 U.S.C. §§ 371 and 1952(a)(3). (See Doc. No. 148.) After a three-week trial, a jury found Finazzo guilty of conspiracy to commit mail and wire fraud, and to violate the Travel Act in violation of 18 U.S.C. §§ 371, 1341, 1343 and 1952(a)(3); fourteen counts of substantive mail fraud; and one count of substantive wire fraud. (See Doc. No. 260.) The jury also rendered a special forfeiture verdict in the amount of $25,790,822.94. (See Doc. No. 262.)

Now before the Court are defendants' motions related to sentencing and forfeiture: (1) Dey's request for an evidentiary hearing, (2) both defendants' challenges to the amount of restitution sought by the government; and (3) Finazzo's motion to vacate the special forfeiture verdict as unconstitutionally excessive. For the reasons that follow, the Court finds: (1) no evidentiary hearing is required; (2) restitution is appropriate in the amount of the kickbacks received by Finazzo; and (3) no constitutional infirmity undermines the jury's forfeiture verdict.

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BACKGROUND

A full recitation of the facts and procedural history of this case is set forth in this Court's Memorandum and Order issued January 14, 2014 addressing Finazzo's motion to set aside the jury's verdicts as to guilt, familiarity with which is presumed. (See Doc. No. 343.)1 From that Memorandum and Order, for the reader's benefit, the Court provides below its prior recitation of the trial evidence.

I. The Evidence at Trial

A. Financial Interests in South Bay and its Affiliated Entities

Finazzo's former accountant and cooperating government witness, Paul Conefry, testified about Finazzo's and Dey's joint business ventures. Shortly after Finazzo was hired by Aéropostale in 1996, Conefry met with Finazzo and Dey about a new business venture they were embarking upon together - South Bay. (Transcript of Trial Proceedings ("Tr.") at 821.) Finazzo and Dey planned that South Bay would do business with Aéropostale and other companies. (Id.) During this initial meeting, Conefry cautioned Finazzo and Dey about their plans because "if you have a relationship with a vendor as an employee of a company it could create a problem." (Id.) Finazzo stated in response that he did not think Aéropostale would "go for it." (Id.) Nevertheless, Finazzo and Dey agreed that South Bay would serve as a vendor to Aéropostale. Dey was the sole owner of South Bay. (Tr. at 824.) Finazzo, in turned, formed C&D Retail Consultants ("C&D") in part as a means to facilitate funneling of Aéropostale's business to South Bay. (Id.) Finazzo used his position at Aéropostale to direct business to South Bay, and South Bay's business grew rapidly. (Id. at 823.)

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Conefry was the accountant to both South Bay and C&D. (Tr. at 822.) In that capacity, Conefry directed payments from South Bay to C&D as instructed by Finazzo and Dey and pursuant to their agreement. (Id. at 825.) Over time, Dey and Finazzo agreed that Finazzo would receive fifty percent of South Bay's profits, paid as consulting fees from South Bay to C&D. (Id. at 826.) Conefry also testified that Finazzo and Dey jointly owned three corporations, Vertical Line Apparel, Inc., Vertical Line Apparel II, Inc., and Vertical Line Apparel III, Inc. (the "Vertical Line entities"). (Id. at 843.) The Vertical Line entities also served as vendors to Aéropostale. (Id. at 342.) Dey and Finazzo also jointly owned other South Bay-named entities, including South Bay Sports Plex, South Bay Ticketing, and South Bay Knitting.2 (Id. at 844; see also Govt. Ex. 356.) Conefry prepared the tax returns for all of these entities as well. (Tr. at 844.)

Each year that Conefry prepared the taxes for South Bay and C&D, he cautioned Finazzo and Dey that, as South Bay's business with Aéropostale grew "bigger and bigger," Finazzo should disclose their relationship to Aéropostale, and Conefry warned that they needed to be very careful about categorizing the payments from South Bay to C&D as consulting fees because they were not. (Tr. at 830-33.) Around the time that Aéropostale was going public, another discussion to this effect occurred and Finazzo responded to Conefry that "it's gone along so far so we will just continue." (Id. at 832.) During a similar conversation, Finazzo at one point also said that he was going to be leaving Aéropostale soon and that it was "too late to do anything about it now." (Id. at 839.)

The former Chief Financial Officer of Aéropostale, Michael Cunningham, testified that Finazzo failed to disclose his ownership interest in South Bay or any related-party transactions

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with South Bay on his director and officer ("D&O") questionnaires and his related-party transactions questionnaires that Finazzo was required to complete on a regular basis for Aéropostale. (Tr. at 79-85.) For example, the related-party transaction questionnaires asked Finazzo whether he "had a material financial interest [more than any 10-percent interest in an entity that the company transacts business with] in a transaction or a proposed transaction to which Aéropostale was or is to be a party to?" (Id. at 90.) Finazzo consistently and falsely answered "No" to this question. (Id.)

Similarly, the General Counsel of Aéropostale, Edward Slezak, testified that Finazzo lied on his D&O questionnaires about his relationship with South Bay. On these questionnaires, Finazzo stated he received no bribes or kickbacks or other favorable treatment from third-party vendors and that he did not partake in any financial transaction with a third-party vendor. (Tr. at 406-19.) The former Chief Executive Officer of Aéropostale, Julian Geiger, testified as well that Finazzo never disclosed his financial interests in South Bay. (Id. at 1056.)

B. The Graphic T-Shirt and Fleece Business

Geiger testified that Aéropostale started doing business with South Bay based on Finazzo's recommendation. (Tr. at 1010.) Aéropostale bought primarily graphic t-shirts and fleece products from South Bay. (Id. at 1011.) Geiger testified that from 2002 to 2006, Finazzo was responsible for vendor selection and vendor pricing for merchandise. (Id. at 1010.) Cunningham also testified that, as Chief Merchandising Officer, Finazzo was "responsible for the overall final price that was being negotiated with the vendors," including South Bay. (Id. at 99.) Cunningham testified that the "single most important factor in determining" Aéropostale's profitability is the cost it pays for its goods. (Id. at 97.)

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As an example of the level of control Finazzo exercised over the graphic t-shirt business, Cunningham testified that Geiger suggested to Finazzo that he move twenty-five percent of the t-shirt business to overseas vendors in order to obtain a price lower by $1 to $1.50 per t-shirt, representing an approximately $5 million cost-savings to Aéropostale. (Tr. 123, 125, 126.) Finazzo said that he would look into it, but grew more and more agitated each time Geiger confronted him about it. (Id. at 124-25.) Geiger corroborated this testimony. He believed that Aéropostale was paying about $5 per t-shirt produced domestically by South Bay and believed he could get t-shirts from overseas vendors for $3.50 each, recognizing it would take more time for overseas vendors to deliver product to the United States. (Id. at 1040.) He asked Finazzo to move twenty-five percent of the t-shirt business to overseas vendors, and Finazzo said he would do so. (Id. at 1041.) By moving that business overseas, Geiger estimated that Aéropostale would have earned an additional $6 million in profit. (Id.) Finazzo never moved twenty-five percent of the graphic t-shirt business overseas as directed. (Id.) Over time, as Geiger and pressed Finazzo on the issue, Finazzo became "agitated." (Id. at 124.) During one of the last meetings on moving to overseas t-shirt vendors, Cunningham recalled that Finazzo again became "agitated" and "said this meeting is over and walked out the door and slammed the door shut and the whole room vibrated." (Id.)

Geiger also testified that, whenever Finazzo was questioned about the relatively low profit margins that Aéropostale earned on its graphic t-shirt business, Finazzo reacted strongly: "On many occasions, he would take his hands and hit them against the table and basically say why are people looking so closely at this? At one point . . . he told me, I wasn't allowed to ask him any questions about graphic t-shirts for a month." (Tr. at 1036.) Geiger testified further that

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while he was the Chief Merchandising Officer, Finazzo had the final say on the number of orders for graphic t-shirts that Aéropostale placed. (Id. at 1055-56.)

Additionally, many former and current employees of Aéropostale who worked under Finazzo during the relevant time period testified about his level of control over the graphic t-shirt business, specifically as it related to South Bay. For example,...

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