The company’s board ousted the 45-year-old Charney as chairman on
Wednesday, citing unspecified allegations of misconduct. It
suspended him as president and chief executive officer, and plans to
fire him for cause, following a 30-day period stipulated in his
The company's independent directors hired law firm Jones Day in
mid-March to lead the investigation, said the person and a separate
source familiar with the matter. It is unclear what events prompted
the board to initiate the investigation, which is ongoing.
The probe revealed that Charney, who founded the hipster clothing
brand, was using company funds to book flights for his parents, the
person said. He also sometimes provided corporate apartments to
friends and stayed in them himself when he wasn’t on company
business, according to this person.
The investigation’s findings also included that Charney had known
about but failed to stop a blog created by an American Apparel
employee that displayed naked photographs of former saleswoman,
Irene Morales, who had sued him, the person said.
A person familiar with Charney's thinking said that any use of
photographs of the former employee by American Apparel was only done
to counter her damaging allegations and the strategy was approved by
other company officials.
This person said that Charney believed any use of apartments was not
material and was normal business practice. In terms of the travel
charges, this person said Charney’s father is on American Apparel’s
payroll and that his mother, although not an employee, is a retail
and design contributor to the company.
Charney's employment contract entitled him to "vacation benefits and
reimbursement of reasonable and necessary business expenses,"
according to a company filing in April. His father, Morris Charney,
received $238,000 in architectural consulting and director fees from
the company in 2013, the filing showed.
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A spokesman for American Apparel declined to comment. A
representative for Jones Day was not immediately available for
The company, which only has a market value of $120 million, has been
struggling with weak sales and heavy debt. While the industry lauded
Charney for his creativity, the company has been under fire for lax
financial controls and concerns about the strength of its management
In recent years, Charney has fought off a series of sexual
harassment lawsuits. In one of the most high-profile cases, Morales
claimed she was held as a teenage sex slave, forced to perform
sexual acts during an eight-month period, including oral sex in
Charney's Manhattan apartment just after she turned 18.
A lawyer for American Apparel said in 2011 that it was Morales who
had stalked Charney and was trying to "shake down" the company.
In 2012, a New York judge ordered her $250 million claim to be
arbitrated. The status of the arbitration proceedings could not be
American Apparel is in talks to hire an investment bank, expected to
be boutique Peter J. Solomon, one of the people close to the matter
said. The bank, which could not be immediately reached for comment,
will provide capital if the company's lenders declare it in default
on some of its debt, the person said.
(Reporting By Nadia Damouni and Jeffrey Dastin; Editing by Jilian
Mincer and Martin Howell)
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