Shareholders launch legal action against American Apparel directors

American Apparel's troubles are far from over despite the ousting of its controversial founder, Dov Charney. Now its shareholders are taking legal actions over claim the directors ignored the suspended CEO’s misconduct that violated the retailer’s sexual harassment and discrimination policies.

Charney haunted by sexual misconduct allegations

The lawsuit cites a June 18 letter by directors suspending Charney as CEO and describing how he authorised severance packages to former employees, and raises and bonuses for current employees, in exchange for agreements protecting him from personal liability for sexual misconduct.

“The Board has long known and has recklessly ignored these and other problems with American Apparel’s operations, finances, management and personnel,” according to the complaint filed on Tuesday in the federal court in Los Angeles.

“Even after their belated investigation found substantial evidence warranting Charney’s termination, the board did not immediately take steps to initiate that termination process.”

American Apparel’s stock price plummeted from 15 dollars in 2007 to a low of 47 cents in early 2014, and the company has been forced to borrow at interest rates of as much 20 percent, according to the complaint.

Charney’s mismanagement has made it difficult to attract and retain qualified employees, the investors claim.

Image: American Apparel