American Apparel Dismisses CEO Dov Charney, Claims Misconduct

Board Acts After Investigation

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Dov Charney.
Dov Charney. Credit: Keith Bedford/Bloomberg

American Apparel replaced its CEO, Dov Charney, who has faced accusations of sexual harassment, after an investigation into misconduct at the casual clothing maker he created.

The board named Chief Financial Officer John Luttrell, a former executive with retailers Old Navy, Wet Seal and Cost Plus, as its interim CEO, according to a statement yesterday. Mr. Charney was suspended and will be terminated for cause after a contractual 30-day wait, Los Angeles-based American Apparel said.

Mr. Charney, 45, tested limits with the use of young, scantily clad models in advertisements for the company's American-made underwear. That approach spilled over into his management, spawning lawsuits alleging sexual harassment. The company has lost money recently under Charney and its stock has fallen under $1. His dismissal may trigger a notice of default, American Apparel said.

"We take no joy in this, but the board felt it was the right thing to do," Allan Mayer, who has been lead director for the past three years, said in the statement. "Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead."

Mr. Mayer and director David Danziger were appointed as co- chairmen, replacing Mr. Charney in that role. The company will start discussions with its lenders to seek a waiver, and is working with a search firm to find a successor, it said.

An outside spokesman for the company declined to comment on the alleged misconduct or talks with lenders. Mr. Charney didn't respond to a request for comment sent to his American Apparel e- mail. A Los Angeles Times reporter wrote that Mr. Charney hung up quickly when reached by phone.

Share plunge
American Apparel fell 1.5% to 64 cents yesterday in New York. The stock, which traded at $15 at the end of 2007, has lost almost half of its value this year.

Mr. Charney had been working to create some breathing room for the company. Facing a debt payment that exceeded American Apparel's cash on hand, he attracted an investment in March from the Swiss firm FiveT Capital. Johannes Minho Roth, the Zurich-based company's founding partner, didn't return calls seeking a comment on the CEO dismissal.

While the chain has racked up about $270 million in net losses since the beginning of 2010, it had been one of the hottest retail brands in the past decade. With its irreverent advertising, U.S.-made goods and tight-fitting clothes, the company almost doubled sales between 2006 and 2008.

In recent years, sales have slowed and losses have piled up, in part because of a costly new distribution center that didn't perform as expected. That left the retailer facing a cash crunch, with an interest payment of $13.4 million coming in April.

Sexual harassment
Fearing that the company may be headed for default, American Apparel's bondholders hired advisers to help them strategize, people familiar with the matter said in February.

That same month, the NYSE Amex threatened to delist American Apparel's stock, citing the chain's financial state and its inability to meet obligations.

In February 2006, a former employee alleged she was subjected to sexual harassment that led to a finding from the Equal Employment Opportunity Commission that reasonable cause existed that women were subjected to harassment at the company, according to regulatory filings. The company reached a three-year agreement with the employee and the EEOC in August 2013 that governs its administrative measures.

Two shareholder lawsuits alleged the company failed to prevent a sexually hostile work environment. The suit was dismissed in federal court, and the plaintiffs have appealed.

~ Bloomberg News ~

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