American Apparel Hipster Turns Preppy As Stock May Be Delisted
Keith Bedford/Bloomberg via Getty ImagesDov Charney was removed this week as Chairman and CEO of American Apparel.
By Nadia Damouni and Jeffrey Dastin

An internal investigation at American Apparel (APP) has found that its CEO Dov Charney violated company policies, ranging from misusing company funds to failing to stop the discrediting of at least one former employee who had accused him of sexual harassment, a person close to the matter said.

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 contract.

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 a 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.

A spokesman for American Apparel declined to comment. A representative for Jones Day was not immediately available for comment.

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 team.

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 immediately determined.

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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17 Comments

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Dave Clements

So he got his blanky blankied for 8 months before she complained? Hummm

Mabe he tried to play hide the blanky in the dark hole and then she had enough

June 22 2014 at 8:25 PM Report abuse rate up rate down Reply
wlh1923

For a guy who heads a clothing/fashion company he is greasy, unkempt and decidedly unfashionable. The 1970's vintage aviator glasses, greasy, unkempt hair and dirty clothing he wears ought to be enough to get him fired

June 22 2014 at 6:40 PM Report abuse rate up rate down Reply
lacabrera

Can we do the same to our political"s hacks in Washington ,as they did to this guy ,they are doing the same thing ! as far as American Apparel goes ,i don't know i don't shop there

June 22 2014 at 1:33 PM Report abuse rate up rate down Reply
fevans123

American Apparel has a strange policy on returns for items they deem "accessories." Men's ties and suspenders cannot be returned or exchanged. The suspenders lasted about a month.
Staying away from them,

June 22 2014 at 9:55 AM Report abuse rate up rate down Reply
d1anaw

Funny how just the other day so many were defending him because "all he did" was screw around and threaten women. No big deal, since abuse and assult of women is seen as a victimless crime. ( oh wait, it's not seen as a crime at all). Now the truth comes out that he commited some "real crimes", that probably cost men their money and well we just cannot have that.

June 22 2014 at 2:29 AM Report abuse -1 rate up rate down Reply
2 replies to d1anaw's comment
Tom

I am not sure what world that you come from but I have seen men fired for harassing a woman. If you just sit on your hands and do nothing don't expect others to do everything for you. Although if you are on the far left that is what you have come to expect

June 22 2014 at 1:52 PM Report abuse rate up rate down Reply
oldschool

What I read sounds like the company and the CEO were under attack by extortionists. Seems to be a setup with a 250 million lawsuit when the company is only worth $ 130 million. I think we can expect more of this from the dependencycrats as long as this administration is in control. It`s all about stealing wealth.

June 22 2014 at 3:03 PM Report abuse rate up rate down Reply
ectullis

We should do the same to Hussein

June 21 2014 at 8:37 PM Report abuse -2 rate up rate down Reply
1 reply to ectullis's comment
hf2hvit

We did...Obama had him killed but you were probably watching FOX and getting FACTS.

June 22 2014 at 12:48 AM Report abuse rate up rate down Reply
2 replies to hf2hvit's comment
hf2hvit

And since you're probably not too bright (at least as bright as a parrot), that's called sarcasm

June 22 2014 at 12:50 AM Report abuse +3 rate up rate down
Tom

YOU are saying that someone else is not too bright? If I were you I would stay low and quiet if you were dumb enough to vote for Obama. And if you did it twice you have alot in common with a box of rocks as far as intelligence goes.

June 22 2014 at 1:55 PM Report abuse rate up rate down
cvanac8550

What kills me about these egotistical CEO's is that they have a ton of money yet they have to powerplay with their employees.Go out and buy a role play hooker you cheap SOB. Reminds me of the CEO at National Grid he had to have an affair with a VP and then he denied the whole thing... This guy will go out with a wad of cash and start up another business and it will be business as usual ..he won't miss a beat......

June 21 2014 at 6:40 PM Report abuse rate up rate down Reply
Davie2743

Is he also a racist ?

June 21 2014 at 12:46 PM Report abuse -1 rate up rate down Reply
1 reply to Davie2743's comment
juststeve35

Why...

Are you?

June 21 2014 at 1:28 PM Report abuse +1 rate up rate down Reply
petpetdon

I have never been in this store. So the CEO gets caught with his hand in the cookie jar. Make him pay all the money back and keep his golden parachute cash too.

June 21 2014 at 7:55 AM Report abuse rate up rate down Reply
mary

Their clothes are awful in style quality and materials, their only selling point being that they (claim) they are MADE IN THE USA. Their stores are poorly laid out and and their displays untidy at least ( so much for the father receiving nearly $250,000 a year for architectural advice!). They wouldn't be missed if they disappeared today.

June 21 2014 at 7:47 AM Report abuse rate up rate down Reply
1 reply to mary's comment
juststeve35

Hey, Einstein?

Architectural advice would have ZERO to do with untidy displays....

smh

Yer not terribly bright, eh???

June 21 2014 at 1:29 PM Report abuse -1 rate up rate down Reply