Charney Seeking $40 Million From American Apparel

Fired Last December After Investigation Revealed Misconduct

Dov CharneyOusted from American Apparel (asi/35297), former CEO Dov Charney plans to sue the company he founded for upwards of $40 million in damages. Fired last December after an investigation revealed alleged misconduct, Charney wants nearly $6 million in severance, $1.3 million in unpaid vacation days, at least $10 million for emotional distress and 13 million shares of American Apparel, according to a letter from his attorney Keith Fink. Additionally, Charney wants American Apparel to return art from the apparel company’s offices that he says belongs to him. Fink said in the letter that the art could be worth “tens of millions of dollars.”

American Apparel believes that its handling of Charney has been appropriate and that the former CEO does not have any legal standing for his case. “These claims are baseless, and we are confident that Dov will lose on each and every one of these,” the Los Angeles-based company said in a statement.

The feud with Charney is playing out as American Apparel tries to get back on a path to profitability. The clothing maker, which manufactures its wearables in the U.S., hasn’t turned a profit since 2009. The company suffered a fourth-quarter net loss of $28 million. Last week, American Apparel said that it borrowed $15 million from hedge fund Standard General. The apparel maker plans to use the cash, part of $25 million in overall financing, to make an interest payment of $14 million due in three weeks.

Charney’s pending lawsuits are the latest in a saga that started last June when American Apparel suspended him for allegedly misusing company funds and disregarding sexual harassment policies. Charney’s improper behavior was said to include staying in corporate apartments when he wasn’t on business, using company funds to buy airline tickets for his parents and allowing the online posting of nude photographs of a former worker who was suing him.

American Apparel fired Charney after an independent firm reviewed his actions. Since being removed, Charney has sought reinstatement at the clothing firm he founded, but has been mostly met with closed doors.

Adding to the drama, a federal filing made public last week confirmed that the U.S. Securities and Exchange Commission is investigating American Apparel’s dismissal of Charney. The probe is a “non-public, fact-finding inquiry” into “matters arising from [American Apparel’s] review relating to Mr. Charney.” American Apparel has pledged to cooperate fully with the investigation, which will essentially determine whether any laws were broken.