Embattled retailer American Apparel said this week in a Form 10-K filing that the Securities and Exchange Commission has ordered a formal investigation against it related to the ousting of Chairman and Chief Executive Officer Dov Charney.
The company said the SEC’s investigation is “a non-public, fact-finding inquiry to determine whether any violations of law have occurred.” It added that it “intends to cooperate fully with the SEC in its investigation.”
In June, American Apparel’s board of directors voted to replace Charney as chairman of the board, suspended him, and notified him of its intent to terminate his employment as CEO in connection with several sexual harassment lawsuits against him. Furthermore, American Apparel in July announced the formation of a special “suitability committee,” whose purpose is to oversee the continuing investigation into Charney’s alleged misconduct.
Based on the findings of the internal investigations in December, the suitability committee determined that it would be “inappropriate for Charney to be reinstated as our CEO, or serve as an officer or employee of us or any of our subsidiaries, and the board terminated Mr. Charney for cause under his employment agreement,” the company stated in its latest Form 10-K filing.
In connection with his suspension, Charney had submitted a demand in arbitration against American Apparel, “which had been stayed pending the determination of the suitability committee in the internal investigation,” the company stated. “As a result of Mr. Charney’s termination for cause, such stay is no longer in effect, and we recently have received correspondence indicating that he intends to reinstate his demand for arbitration. Additionally, Mr. Charney may seek to file additional lawsuits against us arising from his termination for cause.”
New Board Appointment
American Apparel also said in the Form 10-K filing that the board's decision to terminate Charney as CEO and to not reinstate him in another capacity “could result in departure of other key employees.”
The company added that a board member appointed by private-equity firm Lion Capital resigned from the board March 6. The board then elected a member designated by Lion to fill that vacancy on March 24.