December 17, 2014 / 12:32 AM / in 3 years

American Apparel names new CEO, officially ousts founder

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

(Reuters) - American Apparel Inc has fired its Chief Executive Officer Dov Charney six months after suspending him, ending a tenure racked with sexual assault allegations and scandal.

The retailer, known for its provocative clothing ads, also announced Tuesday that Paula Schneider will take over as chief executive on Jan. 5. Schneider currently serves as president of ESP Group Ltd, which owns brands such as English Laundry.

The news may provide relief to the Los Angeles-based company, which has been bogged down by debt and investigations into Charney’s conduct that have lasted for months. A deal that would have kept the founder with the company, in part to avoid a lawsuit from him, fell through in December, according to a source familiar with the situation.

The board of American Apparel suspended Charney on June 18 for allegedly misusing funds and helping spread nude photos of a former employee. Charney since served as a paid consultant to the company.

“I‘m proud of what I created at American Apparel and am confident that, as its largest shareholder, I will have a strong relationship with the company in the years ahead,” Charney said in an emailed statement.

“Naturally, I am disappointed with the circumstances,” he added.

In July, Charney increased his ownership of American Apparel to about 43 percent through a loan from hedge fund Standard General, although the fund controls his stake as collateral.

Standard General has placed several affiliates on the retailer’s board and has plotted a future for the struggling company with or without Charney.

The retailer’s stock rose about 12 percent after market close to trade at 65 cents.

DEAL BROKEN

The source familiar with the situation said American Apparel attempted to keep Charney involved as a consultant to the company for his marketing expertise and to stave off a lawsuit from him.

The arrangement took weeks of negotiation between the company’s lawyers and Charney’s but ultimately fell through this month.

“We were assuming that it was going to be signed and sealed in a few days, and then we never heard from Dov again. It was very odd,” the source said.

“I fully expect him to (sue),” the source added, although Charney said in his statement that he wishes the company “continued success.” Money was not the reason the deal collapsed, the source said.

American Apparel reported a net loss of about $19.2 million last quarter. Its current interim chief, Scott Brubaker, will help transition the company as a consultant after Schneider takes over.

Reporting by Jeffrey Dastin and Nadia Damouni in New York; Editing by Lisa Shumaker

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