Risk & Compliance

Ex-American Apparel CFO Accused of Cover-Up

Lawsuit is the latest in a series of bizarre events surrounding the company.
Matthew HellerApril 23, 2015
Ex-American Apparel CFO Accused of Cover-Up

A former American Apparel finance department employee has alleged the struggling clothing company wrongfully fired him for complaining about the performance of former CFO John Luttrell.

Dov Charney, American Apparel's ex-CEO

Dov Charney, American Apparel’s ex-CEO

In another in a series of lawsuits involving American Apparel, David Nisenbaum also alleges Luttrell orchestrated the termination of controversial CEO Dov Charney in June 2014 so he could sell American Apparel and cover up “fraud in running a publicly traded company.” Luttrell took over from Charney as interim CEO before leaving American Apparel in September.

As early as February 2014, the suit says, Luttrell “schemed to remove Mr. Charney from his position as CEO of American Apparel,” providing the audit committee with a memo in which he said the solution for the company’s problems was to “remove CEO and replace with an interim replacement. Put the company up for sale.”

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According to a complaint filed earlier this week, Nisenbaum discovered “embarrassing deficiencies that put Mr. Luttrell in a bad light” after he was hired in 2012 to upgrade American Apparel’s accounting and finance departments.

Among other things, the suit says, Luttrell mismanaged the execution of a $220 million bond financing and mishandled the opening of a new distribution center, costing American Apparel at least $30 million in direct and indirect losses.

During his time at American Apparel, Nisenbaum said he also discovered three embezzlement rings “involving several hundred thousand dollars of vendor kickbacks.”

After Charney was suspended in June 2014 , Nisenbaum filed a complaint to the board of directors saying Luttrell had violating accounting and disclosure requirements under federal Sarbanes-Oxley rules and “was not competent as a CFO.” The next day, he was fired, according to the suit, which also alleges Luttrell was openly hostile toward him because of his Jewish faith.

The suit seeks unspecified damages against American Apparel for discrimination, retaliation and wrongful termination.

In a $40 million suit filed Wednesday, two American Apparel shareholders allege Charney was fired because he refused to sell the company and they had received information from Charney that Luttrell was behind his termination.

An American Apparel spokesperson told the Los Angeles Times it does not “comment on personnel matters, especially those that precede the current management team.”