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American Apparel CEO Trial Starts Today

Published: Tuesday, 19 Feb 2008 | 8:24 AM ET

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By: Margaret Brennan
CNBC Reporter

Now that American Apparel CEO Dov Charney's sexual harassment and wrongful termination lawsuit is headed to trial, will there be changes in the boardroom or behavior in how day-to-day management of American Apparel is handled?

On Friday, Los Angeles Supreme Court Judge John Shook declared that attempts to arbitrate the case brought against Charney by former employee Mary Nelson have fallen apart. The trial is set to begin today (Tuesday, Feb. 19).

In an interesting twist, hedge fund king Stevie Cohen upped his stake in American Apparel [APP Loading... () ] (trades on the AMEX under ticker APP) to 5.5 percent from 4 percent. (His affiliates S.A.C. Capital Management and CR Intrinsic Investors own 3.14 million shares.)

While Cohen reported the stake today as a passive investor, it will be interesting to see if/how his growing ownership influences management.

Last month, Charney told me that the sexual harassment suit against him would have no impact on the business and that they didn't intend to make any changes to its sexually-charged advertising campaigns. Now that APP is a publicly traded company, I can't help but think that there will be some impact on business.

While accusations against Charney have been well-publicized (and, to be fair, none of the previous three harassment cases against him have made it to trial), the bad press hasn't seemed to hurt business. Any press is good press, I guess when it comes to building an "edgy" image.

But here's where it may impact American Apparel: A trial that involves the personal behavior of a CEO undoubtedly costs that executive time, energy, focus and, certainly, some employee confidence.

Clearly American Apparel's core clothing business and edgy advertising campaigns (those linked with social issues like immigration) make it a very interesting business story. If the company wants the media and investors to stay focused on their core competencies and growth story though, they need to make sure that this case and their CEO's alleged misbehavior doesn't hijack their success.

Questions? Comments?