Exclusive: American Apparel finds CEO misused funds; helped discredit employee - source

Sat Jun 21, 2014 12:33am EDT
 
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By Nadia Damouni and Jeffrey Dastin

NEW YORK (Reuters) - An internal investigation at American Apparel Inc 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 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.   Continued...

 
American Apparel owner Dov Charney speaks during a May Day rally protest march for immigrant rights, in downtown Los Angeles May 1, 2009 file photo.  REUTERS/Mario Anzuoni