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American Apparel Hit with Another Lawsuit from Former CEO

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By Amanda Griffin

Posted on May 14, 2015

Summary: The former CEO of American Apparel has filed another lawsuit claiming defamation and false light since his ousting in June.

The former CEO, Dov Charney, is suing the company for defamation and false light. Charney was removed as chairman and suspended as chief executive last June for evidence of inappropriate behavior with employees and misuse of company funds.

Charney is alleging that chairwoman, Colleen Brown, wrote a letter to all American Apparel employees stating that he agreed to never return to the company in any position. He denies ever signing an agreement.

American Apparel and Standard General, a hedge fund, have had several lawsuits filed before and after Charney’s removal. The lawsuits allege violations of securities laws and fiduciary duty. This current lawsuit resembles one filed last week against Standard General. An agreement between the hedge fund and Charney helped him buy more stock as he attempted to return to the company, giving them both control of Charney’s 42 percent stake. The hedge fund then did not back his attempts to return as the CEO.

Charney claims in all his lawsuits that the investigation into his conduct was made up in an attempt to take his control of the company away. American Apparel stands firm in believing that a judge will be able to see the lies in his allegations. However, American Apparel has warned in a filing with the Securities and Exchange Commission that their future finances are unclear at this time.

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The company has been struggling for the past four years, incurring nearly $270 million in net loss. Their shares continue to drop in value. The new chief executive, Paula Schneider, explains the continued loss as an effort to eliminate old inventory with steep discounts as they start to implement their turnaround plan.