The SEC Is Investigating Matters Arising From Dov Charney's Departure From American Apparel

The federal agency is taking a second look at the situation surrounding Charney's departure.
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Eliza Brooke
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The federal agency is taking a second look at the situation surrounding Charney's departure.
An American Apparel store. Photo: Andrew Burton/Getty Images

An American Apparel store. Photo: Andrew Burton/Getty Images

In December, American Apparel fired Dov Charney after months of internal investigation and hired a new CEO, Paula Schneider, to take his place. Now, some matters surrounding Charney's departure are getting a second look.

American Apparel said in a filing Wednesday that, in early February, the U.S. Securities and Exchange Commission "issued a formal order of investigation with respect to matters arising from the Suitability Committee's review relating to Mr. Charney." The Suitability Committee, if you'll recall, was the special committee formed by the company's board over the summer to investigate alleged misconduct on Charney's part. The committee ultimately decided that it would be "inappropriate" for him to be return to the company as an executive or employee, resulting in his termination.

According to a source close to the company, the SEC isn't investigating Charney's firing or the committee's handling of his investigation, but rather some issues that got flagged in the process pertaining to Charney's management of the company's finances.

The Los Angeles-based retailer, which has most recently been dealing with complaints from factory employees and the immigration advocacy group Hermandad Mexicana, says it will fully cooperate with the federal agency.

While American Apparel has continued to cut costs when it comes to advertising and payroll — one the Hermandad Mexicana's big complaints, incidentally, is that factory workers' hours have been cut drastically — it spent $3.8 million in legal and consulting fees related to Charney's investigation in the fourth quarter of 2014. 

How's the business doing otherwise? Overall sales dropped from $634 million in 2013 to $609 million in 2014, the company reported Wednesday. That said, American Apparel's net loss only totaled $69 million this past year, against $106 million in 2013. 

We'll be watching to see what emerges from the SEC's investigation. Stay tuned.

Correction: A previous version of this article said that the SEC was investigating Charney's dismissal from American Apparel. The SEC is in fact investigating issues arising from his departure, not the departure itself.