American Apparel founder Dov Charney has gone from running a company worth more than $US200 million to sleeping on a friend’s couch within the past six months.
American Apparel paid Charney an annual salary of $US800,000 as CEO before he was fired from that role in June. The company is valued at between $US226 million and $US243 million.
Charney owns 43% stock in American Apparel, but the hedge fund Standard General controls his stake. He gave Standard General control when he took a loan from the firm in July.
Now he’s fighting to take the company private and threatening to “sue everyone,” according to his interview with Regan.
Charney’s downfall follows a string of allegations of sexual and financial misconduct during his 16-year tenure at the company.
He was fired as CEO due to allegations that he sexually harassed employees and “refused to participate in mandatory sexual harassment training,” according to a leaked copy of his termination letter. American Apparel’s board of directors also accused him in the letter of paying “significant” severance packages to former employees to conceal any wrongdoing.
Charney has denied the charges as baseless.
“Most involve activities that occurred long ago (if at all) and about which the Board and the Company have had knowledge for years,” Charney’s lawyer wrote in a letter to the board.
Charney became known for strange and inappropriate behaviour in 2004 when a writer for Jane magazine published a now-infamous story in which Charney allegedly masturbated in front of her and engaged in oral sex with another employee.
In 2005, three former employees filed sexual harassment cases against him claiming he exposed himself and held meetings in his underwear. Charney said he was simply serving as a model for a new product.
“I frequently drop my pants to show people my new product,” he said in a deposition tape at the time, according to NBC News.
Two of the cases were combined and settled out of court.
The facts of many of the harassment claims brought against Charney are unknown because all American Apparel employees must sign arbitration agreements that require claims against the company to be settled by arbitration meetings — which are typically closed to the public — instead of in court, according to The New York Times.
In one known case, an arbitrator found Charney guilty of defamation for “failing to stop the publication of naked photographs of a former employee, Irene Morales, who had sued him for harassment,” the Times reports.
When the board of directors learned of the ruling involving Morales, it began an internal investigation into Charney’s conduct, according to the Times.
Then another case came to light involving a former American Apparel store manager who claimed Charney called him a homophobic slur, choked him, and rubbed dirt in his face.
A month later, the board fired Charney.
Charney responded by taking out the loan from Standard General to boost his ownership of the company to 43%.
He gave up his voting rights to the firm as collateral for the loan, and since then, Standard General has pushed American Apparel to replace most members of its board.
Charney claims that when he pledged his stake to Standard General, the firm promised to give him back his position, “not necessarily as CEO but that he would effectively be running the company” once an internal investigation against him was completed, Bloomberg TV’s Trish Regan said.
But Standard General ended up using the deal to push him out of the company, Charney now alleges.
Regan quoted Charney as saying, “I gave them my entire life’s work and they agreed to put me back in, but instead they used this investigation to fire me. They betrayed me. I gave them my heart. My shares. They teamed up with Allan [Mayer, co-chairman of American Apparel’s board] and worked against me.”
American Apparel initially fired Charney as CEO because of “concerns about his trustworthiness” and allegations of sexual misconduct, the Wall Street Journal reported. An investigation followed and Charney remained in a consulting role at the company until last week, when he was officially terminated.
Responding to the allegations, a Standard General spokesperson said, “Our objective is to help American Apparel grow and succeed. We supported the independent, third-party and very thorough investigation into the allegations against Mr. Charney, and respect the Board of Director’s decision to terminate him based on the results of that investigation. We believe that American Apparel will benefit from the leadership of its new CEO, Paula Schneider, and we are focused on supporting her and American Apparel going forward.”
Meanwhile, Charney says he is down to his last $US100,000 and sleeping on a friend’s couch in the Lower East Side neighbourhood of Manhattan, and he’s plotting a counteroffensive.
“He wants support to take his company private and to have a role there,” Regan said. “He’s suing everyone, by the way.”
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