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Ousted American Apparel chief fights back

First Published      Last Updated Jun 23 2014 05:07 pm

Dov Charney, the founder and longtime chief executive of American Apparel who was ousted last week by the company's board, filed a formal notice Monday indicating he did not plan to leave quietly.

A regulatory filing with the Securities and Exchange Commission stated that he was in talks with supportive shareholders about making changes to the board and company management in an effort to seek reinstatement.

After years of accusations against Charney that included sexual harassment and assault, the American Apparel board voted to remove him as chairman and to end his relationship with the retailer altogether. It outlined such accusations as repeatedly violating the company's sexual harassment policies and arranging financial settlements with employees that would insulate him from personal liability.

But a person with knowledge of Charney's relationship with the board who requested anonymity because of the legal dispute between them, said many of the issues the board outlined had been on the company's radar for years.

"Mr. Charney believes that such termination is without merit and intends to contest it vigorously," the regulatory filing said.

In Charney's termination letter, the board detailed a variety of the costs it said were associated with the founder's behavior. Large severance packages were given to employees, without consulting the board, to insulate Charney from personal liability, the letter stated. The company's deductible on its employment practices liability insurance rose to $1 million, from $350,000.

It also said Charney had opened the company up to claims of liability, accusing him of failing to stop publication on a blog of naked pictures of a former employee - Irene Morales, who had accused him of sexually harassing her. The letter said his actions led an arbiter to find that the company had acted improperly.

The person with knowledge of Charney's relationship with the board rebutted the board's accusations, claiming that he had told the board of plans to distribute the photographs, and that all the severance packages had been arranged through American Apparel's legal department.

American Apparel announced Monday that it had hired the investment firm Peter J. Solomon. John Luttrell, who was named last week as the retailer's interim chief executive, said that while the company was on track to meet its earnings targets for the fiscal year, "we are pleased to be working with Peter J. Solomon to ensure that we have adequate access to capital in the future at a reasonable cost." Borrowing money at "reasonable cost" has lately been a struggle for the company.

According to a person with knowledge of the board's deliberations who spoke on the condition of anonymity, several financial institutions, including the Solomon firm, had earlier declined to work with American Apparel while Charney was running it.

In recent months, lenders who did provide the company with financing did so for enormous, credit-card-style interest rates of up to 20 percent.