American Apparel Went Into Lots Of Debt To Fire Dov Charney

Photo: Johannes Kroemer/Getty Images.
It's been a long, complicated road to Dov Charney's final departure from American Apparel. And, although the company has a new CEO in Paula Schneider as of this January, a just-released legal filing proves that the Charney drama isn’t over quite yet.

Over the past several months, American Apparel had ordered an exhaustive investigation into its founder, leading to his eventual departure in December. However, a new U.S. Securities and Exchange Commission filing reveals that American Apparel spent so much money investigating — and firing — Charney, the process sent the company careening into debt.

American Apparel has suffered its fair share of financial woes, from sinking stock values and unpaid long-term loans, but the costs accrued during Charney's firing increased this debt exponentially.   

To be clear, the SEC is a financial regulatory body, and thus was only concerned with Charney's financial conduct as CEO of American Apparel, not with any alleged sexual misconduct, or with how AA handled Charney's review or dismissal. The SEC states that this new "investigation is a non-public, fact-finding inquiry to determine whether any violations of law have occurred. [American Apparel] intends to cooperate fully with the SEC in its investigation.”

The SEC also uncovered an important piece of intel: According to Buzzfeed, the commission discovered that the brand spent $10.4 million on its internal investigation alone. Add the other $7 million on employment settlements and employee severance payments American Apparel had to pay, and it sent the company into a deep hole. According to the most recent data, the net loss for the fourth quarter of 2014 was $28 million, compared to the net loss of $20.8 million during the final quarter of 2013. 

American Apparel declined to comment on the filing, but at the top of the "Cash Flow" section of its annual report filed March 25, the company states: "We believe that we have sufficient financing commitments to make the April 15, 2015 interest payment as well as meet other funding requirements for the next 12 months." (American Apparel)
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