Former American Apparel Employee Sues

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American Apparel Inc. shares plunged 35 percent Wednesday on allegations made by an former employee in a wrongful termination suit against the company. The man alleges he was fired in 2006 after refusing requests from Chief Executive Dov Charney to inflate figures on the company’s balance sheet to attract investors.

The Los Angeles-based apparel maker and retailer on Wednesday called Roberto Hernandez’ accusations “frivolous and baseless.”

“The facts are that Mr. Charney had no personal management responsibility nor influence over the work of Mr. Hernandez and played no role in his termination in 2006,” the company said in a statement posed on Business Wire.

Hernandez, who handled accounts payable and computer issues for the company, alleges that Charney repeatedly “demanded that Mr. Hernandez pad the inventory” of the company in an effort to lure investors, according a report in the Wall Street Journal.

Hernandez alleges that he was fired on Nov. 9, 2006, a week after he refused to participate, according to the lawsuit filed last week in Los Angeles County Superior Court.

American Apparel at the time had been seeking investment from LaSalle, a investment firm now owned by Bank of America Corp. That didn’t work out, but American Apparel eventually found capital through a “blank check” initial public offering, in which investors create a public shell firm that then acquires a private concern.

This is the first recent lawsuit against American Apparel that has made allegations of financial misconduct. The company has fought five sexual harassment cases involving Charney in recent years that have been settled, dismissed or placed in arbitration.

“The allegations in this lawsuit are fictional, which the company believes represents a cynical attempt to extract phony leverage by Mr. Hernandez’s counsel, Keith Fink, who has been engaged with the company in other litigation for over three years,” the company said in its statement. Fink represents a woman in one of the harassment cases.

American Apparel on Monday reported its third-quarter profit fell 61 percent as it spent $13.2 million on stock-based compensation.

The company’s shares closed down $2.17 to $4.03 on the American Stock Exchange.

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