New York hedge fund Standard General has broken its silence—in a legal action it’s now pursuing against Dov Charney.
The firm filed a lawsuit against the founder and former chief executive officer of Los Angeles-based American Apparel Monday in the Delaware Court of Chancery that accuses Charney of breach of contract among other claims.
Standard General has largely been silent since the barrage of litigation that has been filed in multiple legal venues and involves Charney, American Apparel, former and current company board members and the hedge fund itself. The complaints all surround Charney’s firing last year in which two sides have emerged: those who claim his termination was illegal and those, including the company, who say he was fired for cause.
The Standard General lawsuit is specific to events in June 2014 when the firm and Charney were still viewed as allies—a circumstance now hard to believe given the accusations that have been hurled in legal complaints and the press. Charney last year made a deal with Standard General in which he borrowed money from the firm after his ouster in order to buy American Apparel shares and boost his stake in the company. The cost to Charney was the forfeiture of his independent voting rights and a number of agreements made with the firm that Standard General says Charney breached.
The firm is seeking an unspecified amount of damages, according to legal documents.
Charney “has not respected the board’s process or its decision to fire him. Since his permanent ouster as eco in December, Charney has been increasingly volatile, litigious and destructive,” Standard General said in its complaint.
“Charney has mounted an extensive and harmful campaign to reinsert himself into American Apparel’s management and operations and to discredit Standard General and its deal with him,” the complaint reads.
Charney has contended in his own set of lawsuits that the hedge fund was part of a conspiracy to rid American Apparel of him and then turn around to sell it.
Keith Fink, an attorney for Charney, called the lawsuit a “smoke screen” to detract from a suit Charney filed against the hedge fund and some American Apparel board members.
“Standard General hasn’t even answered the fraud allegations from the other lawsuit Mr. Charney brought, which includes claims of proxy fraud and fraudulent inducement,” Fink said. “The fact that this lawsuit was brought only after the detailed lawsuit we filed … makes it self-evident the purpose of the lawsuit was merely to give the hedge fund some PR cover[age].”
Amid the legal battles, American Apparel continues to tread water. The company said earlier this month it would shutter underperforming stores and “streamline its workforce” as a part of a strategy to shed $30 million in expenses. It warned that even with such measures it may still need to raise additional capital.