American Apparel fires founder-chairman Charney

CNBC with Reuters
American Apparel board fires CEO

Clothing and accessories retailer American Apparel ousted its controversial founder Dov Charney as chairman effective immediately and moved to fire him as CEO and president following an ongoing investigation into alleged misconduct.

Charney, who has been repeatedly targeted in sexual harassment lawsuits, will be terminated for cause after a contractual 30-day cure period, the Los Angeles-based company said in a statement late Wednesday.

The company's shares, which have lost more than two-thirds of their value over the past year, were up more than 20 percent in premarket trading Thursday. They closed Wednesday at 64 cents on the American Stock Exchange. (Click here for the latest price.)

Dov Charney
Keith Bedford | Bloomberg | Getty Images

The company, known for its racy advertising and bright ``Made-In-America'' clothes, said it named CFO John Luttrell as interim chief executive as it works with a search firm to look for a permanent CEO. The retailer also appointed Allan Mayer and David Danziger as co-chairmen.

``We take no joy in this, but the board felt it was the right thing to do,'' Mayer said in a statement.

Charney, 45, who founded American Apparel's predecessor companies in 1989, has been at the helm since 2007 when the company went public.

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American Apparel spokesman Terry Fahn declined to provide additional details. Charney did not immediately respond to calls and emails seeking comment.

The Los Angeles Times, citing a source familiar with the matter, said Charney's behavior problems did not appear to be criminal in nature, but involved his personal conduct with women and poor judgment.

"He was totally taken by surprise," the source told the newspaper. "He's going to fight like hell to get this company back, but he won't succeed."

American Apparel CEO Charney on Harassment Allegations

In 2011, a former employee had accused Charney of keeping her as a teenage sex slave, amid fear she might otherwise lose her job. She also sued American Apparel and its directors for failing to stop Charney from acting as a ``sexual predator.''

The company, which is struggling with weak sales and heavy debt, said the management changes may have triggered a default under its credit agreements, adding that it will be in discussions with its lenders for a waiver of the default.

In February the company had tapped restructuring advisers after it had reached $240 million in debt and had come close to breaching loan covenants, debt terms designed to protect its lenders, according a media report.

As of May 31, American Apparel had approximately 10,000 employees and operated 249 retail stores in 20 countries, including the United States, Canada, Mexico, Brazil, much of Europe, Australia, Japan, South Korea, and China. American Apparel also operates a global e-commerce site that serves over 60 countries.

—By CNBC with Reuters