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American Apparel Founder Claims Hedge Fund Seduced Him, From Machu Picchu To Central Park

In a new round of legal filings, Dov Charney describes Standard General's lengthy pursuit of a partnership that quickly turned toxic.

Posted on June 25, 2015, at 2:01 p.m. ET

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The wrangling between American Apparel's new management and the company's ousted founder Dov Charney has escalated significantly in the last week, with both sides releasing dramatic and previously unseen allegations against the other.

Via court filings, American Apparel published salacious X-rated text messages allegedly sent by the former CEO to a number of staff members.

And on his side, Charney has submitted a fresh lawsuit offering a much more detailed look into the events surrounding his exile from the company. To support the suit, he has shared previously unseen messages outlining his dealings with hedge fund Standard General, which now controls the business, and new allegations of his interactions with its top executives.

The suit contains an email from Standard General analyst Robert Lavan to Charney on June 22 with a picture of him at an overlook in Machu Picchu. "If I could do this, we can definitely take back APP," the message says, referring to the company with its stock symbol.

An email from Standard General's Robert Lavan to Dov Charney on June 22, 2014.
Court filings / Via court filings

An email from Standard General's Robert Lavan to Dov Charney on June 22, 2014.

A few days later, Charney accepted a loan from Standard General to boost his stake in the company. His lawsuit alleges that after taking the loan, Standard General managing partner Soo Kim met with Charney in Central Park, panicked, and told him he was getting "crucified" by his limited partner investors for associating with Charney — Kim allegedly said one investor pulled $300 million from the fund in response. The lawsuit says that throughout the meeting, "Kim was scratching himself 'to a bleed' in panic."

Kim, according to the lawsuit, asked Charney to stand down from the board and agree to a short investigation, creating the appearance of independence between the investor and the then-CEO.

"Once I get in, I will control the situation and the outcome and I promise to take care of you," Kim allegedly told Charney during a visit to his apartment. "It will take only two weeks and you will be right back in, three weeks at the worst."

The lawsuit says he repeatedly told Charney to "let me get the tip in."

"This is yet another example of the frivolous, meritless lawsuits that Mr. Charney and his associates continue to file at a breakneck pace," a spokesman for Standard General said in an email. "The facts speak for themselves, and we are confident that he will ultimately be held accountable." An American Apparel spokespeson said the suit was "yet another example of the habitual nuisance lawsuits that Dov Charney and his lawyer continue to file, and which we continue to defeat."

In the following months after the Central Park meeting, Kim allegedly sent texts to Charney assuring him that he would be reinstated following an investigation into his time as CEO, and saying "you have to respect the kabuki dance," of the investigation, the lawsuit claims. Charney alleges that despite such talk, Kim and his fund were planning to oust him all along, and is seeking damages of $100 million.

Charney says in the lawsuit that when he was first presented with his termination letter in June, he was offered a "positive" press release that would accompany his decision to resign as CEO and work for the company as a paid creative consultant. Board members allegedly told him that if he refused that, he would be fired "for cause" and the board would "destroy his character publicly with false and misleading claims against his personal and professional reputation," the lawsuit says.

The narratives on each side are now very clear.

American Apparel's current management portray Charney as a man who didn't know how to run a serious public company, and are swift to bring up sex: the sex he was allegedly having with models in his office, the sexy photography he allegedly saved on to company servers, and the sexual harassment suits that distracted the company, and the sex-heavy branding that the company is moving away from.

And aside from all that, Charney agreed to the situation he's in now by signing on the dotted line, with Standard General, they argue. He wasn't tricked or coerced into anything, they say.

Charney and those loyal to him say that the Wall Street guys are the ones in the wrong — they took advantage of a naive, unsuspecting entrepreneur who built something from scratch. Through a complicated set of deals they tricked him out of his life's work, putting at risk thousands of garment worker and white collar jobs in the process.

What's more, they say, the new management is using sex to draw attention away from the fact that Charney was the victim of a complex and ruthless set of financial maneuvers. Ultimately, the company's sales and stock price have both taken a dive since Charney's ouster, benefiting few while setting up a small group of interlopers for a big payday, they say.

And his supporters are quick to point out that Standard General's other most prominent investment is RadioShack — whose fate is well known. After filing for Chapter 11 earlier this year, RadioShack emerged from bankruptcy protection in April and has kept open about 1,750 of its 4,000 stores, all of which were previously facing liquidation.

Indeed, it's difficult to discern the truth from the spin. But here's one metric nobody disputes: American Apparel stock closed at 51 cents on Wednesday, down 59% from last July, and down 93% from when the company first went public in 2006.