2nd Circuit Orders Damages Recount for Aeropostale

MANHATTAN (CN) — The Second Circuit remanded a $13.7 million restitution order for a former Aeropostale executive on Tuesday, but affirmed fraud convictions for his role in a $350 million kickback scheme to defraud the teen apparel retailer.

Christopher Finazzo, the former executive vice president and chief merchandising officer of Aéropostale, was convicted by a federal jury in Brooklyn on 16 counts of fraud and conspiracy in 2013 and sentenced to 8 years in prison.

His co-conspirator, Douglas Dey, pleaded guilty to conspiracy in 2012.

Finazzo directed Aeropostale to buy $350 million in merchandise from Dey’s South Bay Apparel company in exchange for more than $25 million in kickbacks.

Finazzo challenged the Eastern District of New York’s jury instructions regarding the “right to control” property under the mail and wire fraud statutes, particularly whether there was enough evidence to support the allegation he deprived Aeropostale of the “right to control” its assets.

Assets are different from “property”, Finazzo argued, because they are not “obtainable.”  Since he already possessed the property he was convicted of scheming to acquire, Finazzo said that “obtaining” the property was impossible.

But Second Circuit Judge Christopher Droney, writing for the three-judge panel, found substantial evidence that Finazzo “harmed Aeropostale in more ways than simply depriving it of money through his receipt of kickbacks.” Droney cited the inferior quality of South Bay’s products and Finazzo’s repeated rejection of other vendors.

He was joined by Second Circuit Judges Denny Chin and Robert Sack in expressing skepticism in the trial court’s conclusion that there was a “direct correlation” between Finazzo’s gains and Aeropostale’s losses, finding it is “not a sufficiently sound methodology for the district court to merely assume that the kickbacks were solely justified by inflated prices.”

The panel vacated and remanded the restitution calculation, with instructions to determine “what portion of Finazzo’s gain is directly correlated with Aeropostale’s loss, or employ some other means of calculating Aeropostale’s loss.”