Published On: Tue, Jun 24th, 2014

Ousted American Apparel CEO Dov Charney Intends to Fight His Termination

Dov Charney is trying to gain control of American Apparel’s board in an attempt to return as CEO.

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Dov Charney has no intention of simply fading away after being terminated by the company that he founded. The former chief executive officer of American Apparel who was fired from that company for cause last week has formally notified the Securities and Exchange Commission that he will attempt to make changes to the firm’s board and management in an effort to return.

Last Wednesday the American Apparel board gave Charney an ultimatum: quit or be fired for cause. If Charney agreed to resign, then he would still receive $1 million annual salary as a company consultant for four years, but if he refused and forced the firm to terminate him then he would get nothing. Either way, Charney would lose the $23.8 million owed to him in severance under the terms of his contract.

Charney rejected the consulting job and, in accordance with his contract, was formally suspended for thirty days after which time he will be officially dismissed as the company’s CEO.

The termination resulted from a scandal centered on nude pictures of a company employee that were posted online, as well as allegations that Charney misused corporate funds for his family and friends. The employee in question had accused Charney of using her as a sex slave.

American Apparel was forced to pay out more than $1 million in damages and legal fees, resulting from a lawsuit brought by the woman in question.

Charney was also accused of violating the company’s sexual harassment policies and using company funds to pay hush money to his accusers.

Another issue for American Apparel’s board was that of Mr. Charney’s poor management and inability to work well with creditors and business partners. Some lenders have simply refused to do business with them and the company currently has to pay as much as 20% interest for financing. It also reported a $5.5 million loss for the first quarter of this year.

The company’s stock has also fallen 80% in the last five years.

But according to his filing with the SEC, “Mr. Charney believes that such termination is without merit and intends to contest it vigorously.” He points out that the accusations against him date back to 2011 and yet the board saw fit to renew his contract in 2012.

His attorney demanded a meeting with the firm’s board by the end of business Monday to discuss ways of avoiding a legal battle, but no such meeting took place.

In a letter to the board, Charney’s lawyers wrote, “The board’s actions have done a tremendous disservice to the company, as well as causing substantial professional, reputational and financial injuries to Mr. Charney.”

Mr. Charney is still the company’s biggest investor with a 27% stake, which, of course, gives him a say in American Apparel’s future. He has also been in contact with other shareholders since his ouster.

The Swiss company, FiveT Capital, moved yesterday to sell its 13% stake in American Apparel. Whoever acquires it could make the difference in any battle for control of the company.

Dov Charney first began making T shirts as a teenager and started the American Apparel brand name in 1991, while he was still a student at Tufts University in Boston, initially specializing in personalized screen printing.

The Canadian born entrepreneur moved with his company to the West Coast in 1997. Three years later American Apparel moved into a massive seven-story 800, 000-square-foot warehouse in downtown Los Angeles, as the company enjoyed continued growth as an importer and wholesaler, principally marketing in blank T-shirts to screen printers, uniform companies and fashion brands.

 

 

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