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American Apparel Suspends Dov Charney

Board sidelines controversial ceo and chairman with intent to terminate for cause.

Dov Charney was sidelined at American Apparel Inc. amid allegations of misconduct.

The company’s board said late Wednesday that it voted to replace Charney as chairman and planned to terminate him as president and chief executive officer for cause in 30 days.

Charney has been suspended from his executive roles and his termination will be effective following a 30-day “cure” period stipulated in his employment agreement.

Allan Mayer and David Danziger were appointed as co-chairmen of the board.

Mayer, who has been with the company since 2007 and served as lead independent director for the past three years said in a statement that the decision to oust Charney “grew out of an ongoing investigation into alleged misconduct.”

“We take no joy in this, but the board felt it was the right thing to do,” Mayer said. “Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead.”

American Apparel said the management change might have triggered a default under its credit agreements and that it will seek a waiver from its lenders.

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Executive vice president and chief financial officer John Luttrell has taken the reins as interim ceo. The former Old Navy and The Wet Seal executive has been with the Los Angeles-based basics known for its colorful basics and controversial marketing since February 2011.

Luttrell said the company would stick with its “sweatshop-free, Made in USA” stance on manufacturing.

“Our core business — designing, manufacturing, and selling American-made branded apparel — is strong and continues to demonstrate great potential for growth, both in the U.S. and abroad,” the interim ceo said. “This new chapter in the American Apparel story will be the most exciting one yet.”

Danziger added that the company has held initial discussions with a search firm for successors.

There have been a series of lawsuits and other allegations over the years about Charney’s sexual behavior toward female employees. American Apparel’s ad campaigns also often used female employees in sexually provocative poses — ads that were conceived by Charney.

Along with the allegations, American Apparel has repeatedly skirted on the edge of a financial precipice as its debt mounted and the terms of the debt became increasingly onerous. In 2009, it reached an agreement with Lion Capital for additional funds and as of April, Lion had warrants for shares equivalent to a 12.4 percent stake if they were exercised. In April, FiveT Capital Holding AG, a Zurich-based investment fund headed by Johannes Minho Roth, acquired 20 million shares of Los Angeles-based American Apparel, translating to an 11.5 percent stake in the company.

Charney remains the single largest shareholder in the retailer, although his stake was diluted in April by a public offering that saw his holding reduced to 27.2 percent from 42.8 percent.