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Class-action lawsuit accuses hedge fund Standard General of holding American Apparel hostage

Dov Charney

A shareholder class-action suit filed on Wednesday accused New York-based hedge fund Standard General of holding American Apparel hostage. Reportedly, it would reap huge benefits if the clothing company declared bankruptcy.

Standard General is the controlling stockholder at American Apparel, according to California Apparel News.

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In the lawsuit, the shareholders accused the former and current board members of the apparel firm of breaching their fiduciary duties by claiming in proxy statements that Dov Charney, the company’s founder, was an integral part of the brand. The new set of board members were elected in June and suspended him as the firm’s chief executive and eventually removed him as the chairman of the board. Charney was removed as American Apparel’s CEO in December 2014.

Shareholder and former American Apparel employee Eliana Gil Rodriguez said in the lawsuit, which was filed in the Court of Chancery in Delaware, that Standard General was able to gain control of American Apparel after its share prices dropped. Charney owned 43% of American Apparel’s stock, but a secondary stock offering of 61 million shares in March reduced his share to 27%, says the report.

This is the fourth shareholder lawsuit against the company in three weeks, according to the New York Post. Like the previous three other complaints — also filed by people close to Charney — it alleges proxy fraud against the previous board, in which shareholders were duped into re-electing three of five directors who suspended and then fired Charney in December.


American Apparel Spokesperson:

“Dov Charney, Dov Charney’s lawyer and other people related to Dov Charney continue to bring claims that are wrong on the facts and wrong on the law.  Each of these claims is rooted is the exact same agenda.  These meritless claims serve as public relations opportunities now, but they will each will fail the test when put before a judge.  American Apparel’s new management is focused on restoring the financial health of the company and does not intend to waste time addressing each of these meritless claims in the court of public opinion.  We are confident we will succeed on every one of these in the proper venue.”

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