Argued: September 17, 2015
from the United States District Court for the Eastern
District of New York. No. 10-cr-457 ― Roslynn R.
appeal from judgments of conviction of the United States
District Court for the Eastern District of New York
(Mauskopf, J.) following a guilty plea to conspiracy
by Dey and a jury verdict convicting Finazzo on one count of
conspiracy to commit mail and wire fraud and to violate the
Travel Act; fourteen counts of mail fraud; and one count of
wire fraud. Finazzo contends that the district court's
jury instructions regarding the "right to control"
property under the mail and wire fraud statutes were
erroneous and that there was insufficient evidence to support
his convictions on the mail and wire fraud counts. Finazzo
and Dey also appeal from the restitution order in the amount
of $13, 690, 822.94 imposed by the district court jointly and
severally against them, arguing that the district court
improperly used Finazzo's gain as a measure of the
victim's loss. We AFFIRM in part and VACATE and REMAND in
J.A. Zito (Alan S. Lewis, Karen E. Meara, Madelyn K. White,
on the brief), Carter Ledyard & Milburn LLP, New York,
New York, for Defendant-Appellant Christopher Finazzo.
Barry Kingham (Jacques Semmelman, Rachel L. Cohn, on the
brief), Curtis, Mallet-Prevost, Colt & Mosle LLP, New
York, New York, for Defendant-Appellant Douglas Dey.
Winston M. Paes, Assistant United States Attorney (Amy Busa,
Claire S. Kedeshian, Assistant United States Attorneys, on
the brief), for Loretta E. Lynch, United States Attorney for
the Eastern District of New York, Brooklyn, New York, for
Before: Sack, Chin, and Droney, Circuit Judges.
DRONEY, CIRCUIT JUDGE:
Christopher Finazzo is a former merchandising executive for
teen apparel retailer Aéropostale, Inc.
Defendant-Appellant Douglas Dey controlled South Bay Apparel
Inc. ("South Bay"), a clothing vendor. Between 1996
and 2006, Finazzo caused Aéropostale to use South Bay
as its supplier of T- shirts and fleeces in exchange for
secret payments to Finazzo of portions of South Bay's
profits. As a result of this scheme, Finazzo and Dey were
charged in the United States District Court for the Eastern
District of New York with one count of conspiracy to commit
mail and wire fraud and to violate the Travel Act, as well as
fourteen counts of mail fraud and one count of wire fraud.
pleaded guilty to conspiracy to violate the Travel Act and
was sentenced to 42 months' imprisonment. Finazzo was
convicted of all counts after a three-week jury trial. The jury
rendered a special verdict. On the conspiracy count, the jury
found Finazzo guilty of conspiracy to commit mail fraud
"[o]n the basis of intent to deprive Aéropostale
of money" and "[o]n the basis of
Aéropostale's right to control use of its
assets." Dist. Ct. Dkt. No. 260, at 2. It found Finazzo
guilty of conspiracy to commit wire fraud on the basis of
Aéropostale's right to control use of its assets,
but not on the basis of intent to deprive Aéropostale
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 Aéropostale's right
to control use of its assets, but not on the basis of intent
to deprive Aéropostale of money. The district
court (Mauskopf, J.) sentenced Finazzo to 8
years' imprisonment on the substantive mail and wire
fraud counts and 5 years' imprisonment on the conspiracy
count, all to run concurrently. The court also imposed a $13,
690, 822.94 restitution order jointly and severally against
Finazzo and Dey.
does not challenge his conspiracy conviction in this appeal.
He challenges only his convictions on the mail and wire fraud
counts. Both Finazzo and Dey also challenge the restitution
opinion, we address: (1) Finazzo's challenge to the
district court's jury instructions regarding the
"right to control" property under the mail and wire
fraud statutes, (2) the sufficiency of the evidence to
support Finazzo's convictions for depriving
Aéropostale of the "right to control" its
assets, and (3) Finazzo's and Dey's challenge to the
district court's restitution order. We affirm the
district court's "right to control" jury
instructions and conclude that there was sufficient evidence
to support the challenged portions of the jury verdict.
However, we vacate and remand the district court's
restitution order as to Finazzo and Dey. In a summary order
issued simultaneously with this opinion, we affirm the
district court on the remaining issues on appeal.
and Dey were first indicted on June 8, 2010. The original
indictment alleged that Dey and Finazzo "agreed that
Finazzo would cause Aéropostale to use South Bay as a
vendor to purchase merchandise at rates that were less
favorable to Aéropostale than the prevailing market
rate." Dist. Ct. Dkt. No. 1, at 3. "In exchange,
Dey covertly paid Finazzo approximately fifty percent of
South Bay's profits" through C & D Retail
Consultants, Inc. ("C&D")-a consulting business
controlled by Finazzo-and through various joint ventures.
Id. The indictment alleged that Finazzo and Dey did
not disclose this scheme to Aéropostale. The
indictment further stated that, between August 1996 and
November 2006, Finazzo caused Aéropostale to pay South
Bay more than $350 million in payments for its merchandise.
Over that period, Dey paid Finazzo more than $14 million
through bank transfers to C&D and transferred over $13
million to three jointly owned entities: Vertical Line
Apparel, Inc., Vertical Line Apparel II, Inc., and Vertical
Line Apparel III, Inc. (the "Vertical Line
September 6, 2011 Second Superseding Indictment added that
Finazzo and Dey defrauded Aéropostale by:
(1) depriving Aéropostale of the opportunity to make
informed decisions, thereby preventing Aéropostale
from seeking lower prices for merchandise it purchased from
South Bay and the opportunity to select other vendors based
upon price, quality and timely delivery; and (2) causing
Aéropostale to pay higher prices on merchandise it
purchased from South Bay than were available from other
vendors, thereby increasing South Bay's profits and the
amounts Dey paid Finazzo.
App'x at 59. That indictment included seventeen counts.
Count One alleged conspiracy to commit mail and wire fraud
and to violate the Travel Act from August 1996 to November
2006 in violation of 18 U.S.C. § 371. Counts Two through
Fifteen alleged mail fraud in violation of 18 U.S.C. §
1341. Count Sixteen alleged wire fraud, in violation of 18
U.S.C. § 1343, and Count Seventeen alleged a false
statement in a report required to be filed with the
Securities and Exchange Commission, in violation of 15 U.S.C.
§ 78ff(a). Like the conspiracy charge, the scheme to
defraud for the mail and wire fraud counts was also alleged
to have taken place between August 1996 and November 2006.
The mail and wire fraud counts were linked to fifteen
specific payments by Aéropostale to South Bay between
June 9, 2005 and November 1, 2006.
September 27, 2012, Dey pleaded guilty to conspiracy to
violate the Travel Act. In his plea agreement, Dey agreed to
a $7, 500, 000 forfeiture order, but specifically reserved
the right to appeal any restitution order imposed by the
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.
The Government's Case
The Creation of the South Bay Relationship with
1996, Julian Geiger-Aéropostale's President and
CEO-hired Finazzo as its Men's Divisional Merchandising
to being hired by Aéropostale, Finazzo 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. 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.
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.
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 Aéropostale 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.
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
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
Aéropostale 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
South Bay's Transactions with Aéropostale
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 Aéropostale
graphic T-shirts and, eventually, fleeces. Various former and
current employees of Aéropostale testified about the
complete control Finazzo had over Aéropostale's
vendor selection and pricing, and his use of that control to
direct business towards South Bay.
Cunningham testified that the "quantities of goods"
bought from particular vendors needed to be approved by
Finazzo 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.").
Graphic T-Shirt Suppliers
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.
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,  while taking advantage of
lower costs. Id. at 639-40, 1384. Geiger estimated
that Aéropostale 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
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.
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 Aéropostale 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 [Finazzo] any questions about
graphic T-shirts for a month." Id.
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.
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
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
"[b]ecause . . . 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 [Finazzo's] . . .
he's in charge of that." Id. at 1128-29.
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 1132-34. 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.
Kronenberg-the former head of the Women's Division at
Aéropostale-testified that prior to 2003,
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]ecause 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.
Lauritano-a senior product manager at Aerospostale from 2004
to 2006-testified that, in 2004, Finazzo made the decision to
expand Aéropostale's use of South Bay as a
supplier to fleece products as well. 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
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, Finazzo 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 ...