With New Sex Harassment Suits, Is American Apparel's CEO Facing the Endgame?

Last Updated Jun 6, 2011 11:04 AM EDT

At any normal company, someone like American Apparel (APP) CEO Dov Charney would be facing his endgame. He faces four new complaints from employees, one for sexual harassment* (the second this month); his stock might be delisted from the NYSE-Amex exchange; his own accountants have accused him of "misrepresentations"; revenues are in decline; and the company made a loss last year.
The most recent suit -- from former store clerk Kimbra Lo -- begs a question: How many more of these complaints are there, lurking within the company? The suit was only filed in open court because the harassment occurred after Lo left the company. American Apparel employees -- even store clerks, whom Charney likes to use in modelling assignments -- sign confidentiality agreements that require them to take their cases through non-public binding arbitration. There may be a small army of women with arbitration complaints against Charney. Or there may be none. Either way, we don't know.

History, however, shows that Charney tends to allegedly repeat himself when it comes to dealing with his female staff. By my count -- based on this, this and this plus AA's SEC filings -- Charney has been accused of sexual harassment by six different employees. Four of those suits were settled or dismissed. It could be as many as nine in total, but the three other plaintffs suing with Lo say they are unable to detail their claims against Charney due to the binding arbitration.

The other recurrent theme with Charney is the way his advertising plays a role in his alleged transgressions. Lo claims Charney suggested she become one of his models, took her into his bedroom for a business meeting, tried to have sex with her, and take photographs of her while undressed.

In October Charney made an ad titled "In bed with the boss" depicting himself meeting with a pair of his creative directors, "Iris" and "Marsha." Carney has previously made at least two other ads that imply he engaged in sexual activity with his models.

And the Charney boudoir played a cameo role in the lawsuit brought earlier this month by former employee Irene Morales.

Arguably, the stage is now set for Charney's ouster: The company yesterday hired Marty Staff, formerly CEO of Hugo Boss and COO of Calvin Klein, as its chief business development officer. In February it brought in a new CFO, John Luttrell, from Old Navy and Wet Seal. And in October AA hired Tom Casey, the former Blockbuster finance chief, as its president. With that management team in place, AA no longer actually needs Charney to be the boss. So why is he still there?

Anywhere else and Carney would have walked the plank long ago. Yet AA isn't a normal company. Charney owns a majority of its (mostly worthless) stock, and thus can't be fired by his board.

*Correction: This item originally said all four plaintiffs in the Lo complaint are alleging sexual harassment. In fact, only Lo is making that claim. The other three have not described their claims; they are seeking relief from binding arbitration so they can make their claims in court.
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