Opinion ID: 8414535
Heading Depth: 2
Heading Rank: 1

Heading: Finazzo’s Trial

Text: Finazzo’s case proceeded to a three-week jury trial on the Second Superseding Indictment, beginning on April 8, 2013. At trial, the Government called fifteen witnesses — most of whom were current or former Aéropostale employees — and the defense called three witnesses. Because one of the issues on appeal is sufficiency of the evidence, we recount in some detail the evidence presented at trial.

In July 1996, Julian Geiger — Aéropos-tale’s President and CEO — hired Finazzo as its Men’s Divisional Merchandising Manager. 5 Prior to being hired by Aéropostale, Fi-nazzo owned a small sports-clothing retailing business called C&E Marketing, at which Dey was an employee. Shortly after Finazzo was hired by Aéropostale, Peter Conefry — Finazzo’s and Dey’s former private accountant and a cooperating Government witness — attended a meeting with Finazzo and Dey in which Finazzo stated that he and Dey were going to a start a new company that would do business with Aéropostale. 6 Conefry testified that he told Finazzo that Finazzo “better be careful because if you have a relationship with a vendor as an employee of [a] company it could create a problem.” Dey App’x at 1229. Conefry advised Finazzo to check with Aéropostale before proceeding with the new company. Finazzo responded that he “didn’t think Aéropostale would go for it.” Id. Nevertheless, in August 1996, Dey incorporated South Bay Apparel, Inc. South Bay’s business with Aéropostale comprised approximately 99% of South Bay’s total business from 1996 to 2006. In 1998, Finazzo started C&D. Finazzo told Conefry — who also acted as South Bay’s and C&D’s accountant — that he formed C&D so that he could receive “consulting fees” for directing Aéropostale’s business to South Bay. Id. at 1232. Indeed, Conefry testified that C&D primarily received payments from South Bay. Initially, Finazzo and Dey had an informal agreement pursuant to which Finazzo simply told Dey to send funds to C&D. As the South Bay supply business with Aéro-postale grew larger, Conefry was directed to split South Bay’s net profits nearly evenly between South Bay — owned by Dey— and C&D — owned by Finazzo. Although these payments from South Bay to C&D were not for actual consulting, Conefry classified them as such on South Bay’s books. Id. at 1234-36. The payments steadily increased from $355,000 in 1998 to $5,161,550 in 2004. In 2005, the payments from South Bay to C&D totaled approximately $13 million, and Conefry classified them as cost of sales, because $13 million in consulting fees “would be a red flag.” Id. at 1236. Conefry testified that, throughout this time period, he discussed these payments with Finazzo annually during the preparation and filing of Finazzo’s tax returns. When Conefry pushed Finazzo to disclose the arrangement to Aéropostale, Finazzo responded that “it was too late at this time.” Id. at 1238. In response to Conefry’s concern that Aéropostale becoming a public company in 2002 could bring scrutiny from the Securities and Exchange Commission, Finazzo told Conefry “it’s gone along so far so we will just continue.” Id. at 1240. Finazzo and Dey also jointly owned the Vertical Line entities. These entities served as vendors to Aéropostale as well. In addition, Finazzo and Dey jointly owned other South Bay entities, including South Bay Sports Plex, South Bay Ticketing, and South Bay Knitting (the “related South Bay entities”). Michael Cunningham — the Chief Financial Officer of Aéropostale during this time period — testified that once Aéropostale went public in 2002, Finazzo was required to regularly complete director and officer (“D&O”) questionnaires and other related-party transaction documents. The D&O questionnaires asked whether Finazzo had a significant ownership interest in any Aé-ropostale vendor or received money from the vendor. Finazzo received training on multiple occasions to ensure that he understood his responsibility to disclose any such interests. Nevertheless, Finazzo stated on these questionnaires that he was not an officer, director, or partner of any other company; received no bribes or kickbacks from any third-party vendor; and did not engage in any related-party transactions.
CEO Geiger testified that Aéropostale started using South Bay as a vendor on Finazzo’s recommendation in either late 1996 or early 1997. South Bay sold Aéro-postale graphic T-shirts and, eventually, fleeces. Various former and current employees of Aéropostale testified about the complete control Finazzo had over Aéro-postale’s vendor selection and pricing, and his use of that control to direct business towards South Bay. CFO Cunningham testified that the “quantities of goods” bought from particular vendors needed to be approved by Fi-nazzo and that Finazzo was “responsible for the overall final price that was being negotiated with the vendors.” Dey App’x at 615. Edward Slezak — Aéropostale’s General Counsel — stated that Finazzo was “the number two person” at Aéropostale. Id. at 829. He testified that Finazzo “was responsible for all aspects of our product.” Id. “[Finazzo] decided what type of product we would buy, how much of it, which vendors would manufacture the product, how it looked, [and] how it was merchandised in our stores.” Id.; see also id. at 857 (“[Finazzo] was the one who directed all of our product placement, what we made, how much we made, ... who got .the orders, who made the product.”).
Regarding graphic T-shirts, Geiger testified that from 2002 through 2006 Finazzo was the executive primarily responsible for vendors, vendor selection, and vendor pricing. He also stated that Finazzo had “the final say” regarding the number of graphic T-shirts ordered by Aéropostale. Dey App’x at 1400-01. Cunningham and Geiger both recounted that, in early 2005, Geiger recommended to Finazzo that Aéropostale shift 25% of the T-shirts it was buying from South Bay to overseas vendors in order to achieve “significant cost savings.” Id. at 639. Geiger believed that, for certain “core” graphic T-shirts with demand that was easy to predict, Aéropostale could accommodate the longer delivery time from overseas, 7 while taking advantage of lower costs. Id. at 639-40, 1384. Geiger estimated that Aé-ropostale could save $1.50 per T-shirt made overseas. Given the volume of T-shirts being sold, Cunningham estimated that this would have saved Aéropostale at least $5 million, while Geiger estimated savings of $6 million. ' Finazzo initially stated that “he would look into it.” Id. at 640. As the year progressed, Finazzo became “agitated” that Geiger continued to press him on the matter. Id. At one meeting where the topic was discussed, Finazzo smacked the table, told Geiger that the meeting was over, and slammed the door shut as he left. Finazzo never moved 25% of the graphic T-shirt business overseas as Geiger had directed. Geiger also testified that Aéropostale’s profit margin on graphic T-shirts during the time Finazzo was the head of merchandising tended to be less than the profit margin of other similar products Aéropos-tale sold. Geiger discussed these low margins at executive meetings attended by Finazzo. On many occasions, Finazzo would respond by hitting the table with his hands “and basically say[ing] why are people looking so closely at this?” Id. at 1381. Geiger recalled that Finazzo once declared that Geiger “wasn’t allowed to ask [Finaz-zo] any questions about graphic T-shirts for a month.” Id. Jennifer Heiser- — an Aéropostale employee who merchandised graphic T-shirts and reported to Finazzo — testified that the graphic T-shirt business in particular “was [Finazzo’s] baby” and that he was involved in that business “a lot more than [he was involved in] any other department.” Id. at 708. She also testified that she “really was not allowed to bring in other manufacturers [besides South Bay].” Id. at 707. Heiser believed that bringing in additional manufacturers would allow Aéropostale to obtain “the best price and the best quality” because vendors would be forced to bid against each other for Aéropostale’s business. Id. at 707-08. She stated that she therefore tried to place graphic T-shirt orders with vendors in Singapore. However, .Finazzo “discouraged” Heiser from placing orders in Singapore, such that she “really felt that [she] had to put all of [her] business with South Bay.” Id. at 707. On one occasion, when Heiser pushed Finazzo regarding the poor margins achieved by only using South Bay for graphic T-shirts, Finazzo “broke a pencil and said, we are using South Bay, end of story.” Id. at 718. Heiser ultimately placed 97-99% of her graphic T-shirt orders with South Bay. Heiser also testified that Jody Green— an associate merchandiser in men’s graphic T-shirts — often challenged Finazzo about the pricing of graphic T-shirts and asked why they could not use other manufacturers to get a better cost. Finazzo fired Green just three months after she started working at Aéropostale. John DiBarto — Aéropostale’s Divisional Merchandising Manager for the Men’s Division at the time of Finazzo’s scheme— testified that Finazzo “was responsible for negotiating prices on the graphic tee products with South Bay.” Id. at 1098. DiBarto stated that he did not try to negotiate prices with South Bay “[bjecause ... that was [Finazzo’s] thing. He controlled production. And that was ... his baby from the beginning, so ... we did whatever he wanted.” Id. Similarly, DiBarto never asked for an overall reduction in price from South Bay “[b]ecause it wasn’t going to happen. ... Those were variables that wouldn’t change, because they were [Fi-nazzo’s] ■... he’s in charge of that.” Id. at 1128-29. When employees tried to “mess[] with [pricing] a little bit, it wasn’t worth it, [Finazzo] would get angry.” Id. at 1129. For instance, when DiBarto asked Dey for a price breakdown of South Bay’s T-shirts by component to compare to another vendor, Finazzo and Dey yelled at him, saying “we’re not going to do this, why are you doing this, we’re not going to do business with anybody else but South Bay, don’t waste your time.” Id. at 1182-34. When Finazzo heard that Thomas Carberry — a new employee working under DiBarto— had questioned South Bay’s costing structure, Finazzo emailed DiBarto: “John, I would like to let you know that I hear that Tom Carberry is talking about South Bay to other people in the company. I will not tolerate that, and I will be swift in my actions.” Id. at 1144. In an October 21, 2006 email to DiBarto and others, Finazzo summarized his position on using South Bay as the primary graphic T-shirt supplier: “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.” Id. at 1175-76. Jill Kronenberg — the former head of the Women’s Division at Aéropostale — testified that prior to 2008, Aéropostale’s women’s graphic T-shirt business was split between South Bay and a vendor called Mias, with Mias having the majority of the business. Finazzo instructed Kronenberg to transfer business from Mias so that South Bay would have 50% of the women’s graphic T-shirt business. Finazzo issued this instruction despite the fact that the graphic T-shirts made by Mias were of better quality and lower priced. Although she did not want to move business away from Mias, Kronenberg ultimately did so in 2004 “[b]eeause it reached a point where ... basically [she] had no choice.” Id. at 994-95. Kronenberg voiced concerns with Finazzo about the decision to transfer more business to South Bay but was unable to change his mind.
Megan Lauritano — a senior product manager at Aérospostale from 2004 to 2006 — testified that, in 2004, Finazzo made the decision to expand Aéropostale’s use of South Bay as a supplier tó fleece products as well. 8 South Bay was not a “known vendor” for fleece products at the time. Dey App’x at 1958. Lauritano testified that Finazzo determined the price and quantity of fleece orders with South Bay. She explained that South Bay’s performance in the fleece business in 2004 was poor, including significant delivery delays that Aéropostale did not experience with-other fleece vendors. Nevertheless, Finaz-zo dictated that Aéropostale continue buying fleece product from South Bay. When Lauritano informed Finazzo in 2005 that she had done a cost comparison analysis of South Bay and other fleece vendors and found that South Bay was not competitive, Finazzo nevertheless directed her to place an order with South Bay. South Bay continued to have delivery problems in 2005, and Lauritano proposed that South Bay give Aéropostale discounts to account for the markdowns Aéropostale was forced to take on late fleece deliveries. Finazzo ultimately decided that South Bay would not be required to discount those products. Despite these problems, Finazzo still directed placement of fleece orders with South Bay in 2006, negotiating the prices himself. Lauritano testified that South Bay continued to have delivery delays, “some of them [by] several months.” Id. at 1984. She stated that she again proposed that South Bay give Aéropostale a discount, but Finazzo decided not to pursue one. George Justin Meno — a product manager of men’s knits at Aéropostale starting in September 2005 — estimated that South Bay’s “egregious” delivery delays for fleece products in 2005 and 2006 cost Aéro-postale approximately $1.8 million in lost sales. Id. at 760, 767. Because of these delivery delays, Meno suggested looking into pricing for overseas vendors. Finazzo did not authorize this effort. When Meno requested discounts from South Bay to compensate for the delays, Finazzo made it clear that Meno “needed to back off a little bit from South Bay” and refused to request any discounts. Id. at 766-68. Similarly, Jinah Jung — an Aéropostale product manager — testified that she did not want to purchase fleece products from South Bay “[bjecause their costs [were] always high and their quality was subpar.” Id. at 1051. Nevertheless, she purchased fleece products from South Bay at Finaz-zo’s direction, because Finazzo had “the final say” on the orders. Id. at 1052, 1055. On February 14, 2005, Jung sent Finazzo an email stating that the $6.85 price Finaz-zo agreed upon for a South Bay fleece order was “really high,” and that she “kn[e]w” she could “get it for a low $6 range.” Id. at 1053. She specifically noted that Aéropostale “could have saved approximately $300,000” on the order. Id. Finazzo refused to change the order, responding: ‘Tes, that is the price I agreed with [Dey] on.” Id. at 1055.
Aéropostale eventually learned of Finaz-zo’s and Dey’s scheme when, during an unrelated investigation of Finazzo’s conduct, Aéropostale discovered an August 24, 2006, email to Finazzo from his estate planning attorney that disclosed Finazzo’s ownership interest in South Bay, the related South Bay entities, and the Vertical Lines entities. 9 Finazzo was terminated on November 7, 2006. Michael Braconi, an FBI Special Agent, testified that, overall, Aéropostale paid South Bay and the Vertical Line entities $267,078,261.41 between June 2002 and November 2006. South Bay, in turn, paid C&D — which was wholly owned by Finaz-zo — $21,223,831.14 during that same time period. South Bay also paid the related South Bay entities — which were co-owned by Finazzo and Dey — $2,959,520. Additionally, South Bay paid the Vertical Line entities — which were also co-owned by Fi-nazzo and Dey — $6,174,463.60. Half of South Bay’s payments into those jointly-owned entities — equalling Finazzo’s share of the companies — amounted to $4,566,991.80. South Bay’s total payments to Finazzo therefore amounted to the sum of South Bay’s payments to C&D ($21,223,881.14) and Finazzo’s one-half share of South Bay’s payments to the jointly-owned entities ($4,566,991.80). Thus, Braconi testified that South Bay paid Finazzo $25,790,822.94 in kickbacks between June 2002 and November 2006. 10 In connection with the mail fraud counts, CFO Cunningham testified that Aéropostale sent fourteen checks via UPS to South Bay as listed at Counts Two through Fifteen of the indictment. In connection with the wire fraud count, David Libenson, Vice President of Financial Operations at Aéropostale, testified that Aé-ropostale sent a wire transfer to South Bay as listed in Count Sixteen of the indictment. These payments were made from June 9, 2005 through November 1, 2006.
In addition to the testimony regarding Finazzo’s steering of business to South Bay, several witnesses testified about the effect of these related-party transactions on Aéropostale’s business. CFO Cunningham testified that it was important for Aéropostale to know about all related-party transactions involving Aé-ropostale employees. He explained that “if the employee is receiving a benefit [from a vendor] and if that employee is also involved in transacting business with that vendor, the prices that we pay may not be the best price or the fair market value for that product or service.” Dey App’x at 601. Similarly, General Counsel Slezak testified that Aéropostale wanted to know about related-party transactions “because you want to make sure that the company is getting the best possible deal, the best benefit of the bargain.” Id. at 827. CEO Geiger testified that related-party transactions “could easily reduce [Aéropostale’s] profitability and how much money [Aéro-postale] made.” Id. at 1415. Given that Finazzo was on both sides of the transactions between Aéropostale and South Bay, Slezak testified that “[t]here is no way that ... Aéropostale got the benefit of the bargain or got the best market prices or got the best ... engagement with our vendor that we could possibly get.” Id. at 858. He concluded: “Honestly, I felt every penny that [Finazzo] ever got from South Bay should have been ours.” Id. Similarly, Geiger testified that Finazzo profiting from South Bay-related vendors “would directly diminish Aéropostale’s ability to maximize its profits because monies were going elsewhere that could have gone to the company.” Id. at 1418. He concluded that “any profits that [Finazzo] would have gotten, in my mind, would have [otherwise] accrued to the company[,] increasing its profitability, the value to the shareholders!,] and made Aéropostale stronger.” Id. at 1423.
Finazzo called three witnesses at trial: Wade Mosteller, Doris Wilshere, and Megan Lauritano. Wade Mosteller — a retail management consultant whose employer had been engaged by Aéropostale in 2004 — testified about the importance of quick replenishment of stock to Aéropostale. Mosteller explained that Aéropostale could increase profitability by decreasing the time between when goods were ordered and when Aéropostale received them in stores. Doing so would allow shirts that were selling well to remain in stock and continue selling. Mosteller testified that South Bay, a local vendor in nearby Long Island, was able to supply graphic T-shirts to Aéropostale’s distribution center on the east coast quicker than an overseas vendor could. Doris Wilshere — the former head of the Men’s Division and Women’s Division at Aéropostale — testified that South Bay was “exceptional” as a replenishment vendor. Dey App’x at 1833. She testified that South Bay’s women’s graphic T-shirts were higher quality and had a shorter delivery time than those purchased from Mias — Aéropostale’s other major women’s graphic T-shirt vendor. Wilshere also stated that South Bay’s willingness to hold and store inventory was valuable in light of Aéropostale’s “fickle” teenage customer base, which often required Aéropostale to quickly start printing new styles. Id. at 1832,1836. Additionally, Wilshere claimed that it was not unusual for Aéropostale to remain loyal to long-time vendors even when those vendors encountered production difficulties such as South Bay’s fleece-product delivery delays. Laurita-no — the Aéropostale senior product manager — also testified that it was not unusual for Aéropostale to remain committed to long-term vendors, even if that meant paying higher prices.
On April 25, 2013, the jury rendered a verdict finding Finazzo guilty on all counts. For each count, except the portion of Count One concerning Travel Act conspiracy, the verdict sheet asked the jury to determine whether it found Finazzo guilty “[o]n the basis of intent to deprive Aéro-postale of money” and/or “[o]n the basis of Aéropostale’s right to control use of its assets.” Dist. Ct. Dkt. No. 260. On the conspiracy count, the jury found Finazzo guilty of conspiracy to commit mail fraud on the basis of intent to deprive Aéropos-tale of money and on the basis of Aéropos-tale’s right to control use of its assets. It found Finazzo guilty of conspiracy to commit wire fraud on the basis of Aéropos-tale’s right to control use of its assets, but not on the basis of intent to deprive Aéro-postale of money. On each of the fourteen substantive mail fraud counts and the substantive wire fraud count, the jury found Finazzo guilty on the basis of Aéropos-tale’s right to control use of its assets, but not on the basis of intent to deprive Aéro-postale of money. Following the trial, Finazzo renewed his motion for judgment of acquittal under Federal Rule of Criminal Procedure 29, moved for a new trial under Rule 33, and moved to arrest the judgment for lack of jurisdiction of the charged offense under Rule 34. 11 The district court denied Finaz-zo’s motions in a written order dated January 14, 2014.