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NEW YORK — After 18 years of friendship, Julian Geiger still trusted his former chief merchandising officer even during a taped meeting in which Geiger had to fire his friend.
This story first appeared in the April 17, 2013 issue of WWD. Subscribe Today.
Geiger is the former chief executive officer of teen retailer Aéropostale Inc., and the former cmo is Christopher Finazzo.
Geiger, who is now ceo of Crumbs Bake Shops, took the stand for the first time Tuesday morning in the U.S. government’s criminal trial in a Brooklyn federal court against Finazzo, in which he is charged with 16 counts of mail and wire fraud, as well as conspiracy charges. The matter is alleged to have involved a multimillion-dollar kickback scheme that also involved Douglas Dey, Finazzo’s best friend and owner of Aérospostale’s graphic T-shirt vendor, South Bay Apparel. Also at issue is a matter in which Finazzo failed to disclose his relationship with Dey as required by regulatory filings with the U.S. Securities and Exchange Commission, referred to in the trial as “related-party transactions.”
A taped recording of the meeting, at which senior executives were present and during which they informed Finazzo of his termination for cause, indicated just how deep was the friendship between Geiger and his former friend. Parts of the tape were played for the 12-member jury.
At one point, while Finazzo said he “didn’t want anything to happen to Doug,” referring to the business between the retailer and South Bay, Geiger could be heard in the background saying, “I love you.…We’ll talk, you hear.”
In the same recording, Finazzo said, “I’m not part of South Bay. I certainly did not profit from South Bay.”
The recording was also the first time Geiger said he learned of a loan that Finazzo provided to Dey in connection with fleece product for a subsidiary of South Bay called South Bay Peru. South Bay Peru was also sold Aéropostale fleece products when South Bay decided to enter into the business.
Geiger said under oath he had no reason to not believe Finazzo’s statements at the time of the meeting that there was no relationship between Finazzo and South Bay since there was a list of assets shown to Finazzo and South Bay was not listed. Some of those assets were described by Finazzo as real estate holdings.
Part of the allegations the government is seeking to prove is a relationship between Finazzo and Dey in which Finazzo used his position to place orders for graphic Ts with South Bay, and then share in 50 percent of the profits via a company called C & D Retail Consultants that Finazzo set up to receive the monies.
“I thought I knew him very well….I would trust him with the lives of my children,” Geiger said during questioning by Assistant U.S. Attorney Winston Paes regarding his relationship with Finazzo prior to his termination.
Earlier in the testimony, Geiger said that Finazzo kept a close eye on the graphic T business: “He kept it close to him. It was almost his pet division.” Geiger also stated that Finazzo was “protective” of the South Bay account. Geiger, who said Finazzo described South Bay as “one of our very best partners,” said on the stand, “I believed him. He was so close to the business I thought he was telling me the truth.”
At one point during testimony, Geiger admitted to using illegal drugs — cocaine, and marijuana infrequently — while ceo, but on the weekends and not while at the retailer’s offices.
In one instance, Geiger testified that Dey had asked for some cocaine, and “I gave a small amount as a gift,” indicating that the amount had a value of $200.
The last time they spoke was in February 2010, when Finazzo congratulated Geiger on his new position.
Earlier in the day, Thomas Sands, former ceo of the now-defunct Anchor Blue, testified. Finazzo was hired to be part of the merchandising team following his termination from Aéropostale.
Sands said that during the hiring interviews, Finazzo disclosed that he was terminated due to a nondisclosure in a regulatory document that had been filed incorrectly. According to Sands, Finazzo indicated that it had to do with a real estate property, and that he did not say he was fired for cause or that he was “removed due to a relationship with a vendor.”
Sands also testified that he knew of South Bay, which was solely to show that Finazzo placed orders with South Bay while at Anchor Blue.
Finazzo left Anchor Blue after he and Dey were indicted on the fraud and conspiracy charges.
Both Sands, who is now executive vice president for the North American division of Gap brands at Gap Inc., and later Geiger testified about conflict of interest and related-party transactions and why it is an important one for retailers — namely that it could impact how much the retailer has to pay for its orders, which could impact the profits that accrue to the retailer.