There's plenty of scandal surrounding American Apparel (AMEX: APP) since it went public but, up until now, it's consisted almost exclusively of hallegations of bizarre sexual conduct by the company's founder and CEO Dov Charney.
But a new lawsuit tosses the American Apparel quandary into a whole new category. Roberto Hernandez, a former accountant at the company, is suing (subscription required) for wrongful termination alleging that, in 2006, Charney "demanded that Mr. Hernandez pad the inventory" in attempt to make the company appear more attractive to investors. Hernandez says that he "refused to participate in any scheme to potentially defraud the investors" and was fired on November 9th of that year.
This is second time this month that American Apparel has come under fire over allegations that it sought to mislead investors. On November 4th, I wrote about a lawsuit accusing the company of asking an alleged victim of sexual harassment to participate in an arbitration hearing with a predetermined outcome -- and then plotting to issue a press release declaring victory in the sham hearing.
Here's the question: With American Apparel's stock beaten down so badly in spite of incredibly impressive sales growth, does any of this really matter? Up until now, you might have been able to say that it doesn't. But many investors will want to steer clear of a company with a lawsuit accusing the company's CEO of directing an accountant to cook the books.
The shares fell yesterday after the company reported earnings that were down sharply because of stock-based compensation expenses.
UPDATE: This morning American Apparel released a statement in response to the lawsuit and media reports, calling it a "frivolous and baseless lawsuit recently filed by a disgruntled former employee." The company added that "It is unfortunate that the media continues to focus on sideshows and false allegations. It does a disservice to the 10,000 men and women who make American Apparel such an outstanding company; to our customers who love our products; and to our investors who appreciate our strong financial performance and our dedication to being a leading public company."
Former accountant sues American Apparel -- alleges manipulation
Posted Nov 12th 2008 9:45AM by Zac Bissonnette
Filed under: Scandals
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Reader Comments (Page 1 of 1)
11-12-2008 @ 12:49PM
BHarrison said...
Hmmmm . . . "does it matter"? hell yes it matters because all of the previous "looking the other way" and/or issuing "token fines and slaps on the wrists" and these types of corporations to evade having to acknowledge 'gult" is what provided the rampant spread fo FRAUD through our major corporations.
There is no substitute for INTEGRITY.
Once the accounting auditing firms became complicit in "looking the other way" or comng up with "ceative accounting practices" the canerous FRAUD spread throughout our major (and lesser) corporations . . . it was a "laundering of FRAUD" into acceptable practices . . . and now we are experiencing and paying the price of this lack of integrity.
CFOs, accountants, and financial audit firms MUST be held responsible and accountable for what they do. Per the IRS regulations, an employee is responsible for any misdeeds, even IF it is such actions are performed under the duress of the threat of being fired . . . people have the responsibliity to do what is LEGAL . . . there are NO EXCEPTIONS ALLOWED. This accountant did what was correct, proper, and ethical. he should prevail in any legal action for damages.
Only when people have the moral courage to do what is ethically and legally correct will this rampant FRAUD MENTALITY be deterred.
11-12-2008 @ 8:49PM
Tom Petty said...
Why did he wait two years to file a lawsuit?
He's probably right though. American Apparel's CEO is a sex offender.
11-13-2008 @ 9:48PM
j said...
The Update totally invalidates the headlines. I'm not American Apparel fan but looks like you jumped the gun on this one.
11-14-2008 @ 1:46AM
Stan Merkowitz said...
Their retail numbers got me interested in them. It seems like they're really doing well, even in this economic environment, which makes sense given their target market. This kind of stuff gave me pause until I started reading into it.
Is it even principled and ethical for a lawyer to be attacking one company with so much vitriol? I'm reading that Mr. Hernandez was an IT guy, not sure how he would be able to cook the books. I know Cramer's not too high on APP, but I like the value it's at right now. Especially because there isn't any reason to believe a former employee with an obvious grudge over the sales numbers of the company. He might have just done me a favor in nudging along my decision to buy or move on.
11-14-2008 @ 3:49AM
SH said...
It's so easy to miss the details in cases like these. All the sexual harassment the guy mentions in the lawsuit are materially irrelevant to his central claim that Dove ordered him to manipulate the financials. They're included for a reason and that reason seems pretty manipulative itself - to distract and incense people.
If the claims are true, then sure, hang the guy. But why are they being brought up here when really they're so much less serious than lying to investors.
11-15-2008 @ 8:59PM
Just a guy on the street said...
Poor Dov Charney.......the world is just against him...how many press releases has American Apparel called someone a "disgruntled former employee" the number is at six.........read his own words people........can you say flake?