July 1, 2014 at 11:23 pm

Ex-CEO of American Apparel in bid for control of company

New York— The battle for control of clothing chain American Apparel is heating up.

Ousted American Apparel CEO Dov Charney has increased his stake in the clothing chain to nearly 43 percent as he fights to keep control of the company he founded in 1998. Charney was able to increase his stake through a partnership with financial firm Standard General, which is loaning him the money. But the board is scrambling to make its own moves to keep him out.

Legal experts say the dispute will likely end up in the courts at a tough time for the Los Angeles-based company, which has lost money since 2010. The company, which made its name with American-made goods and provocative advertising, is in a cash squeeze.

“This is going to move from the boardroom to the courtroom,” said Jerry Reisman, a partner at Reisman, Peirez, Reisman Capobianco, a law firm based in New York. “Hopefully, it won’t undermine the company. This company is very fragile.”

In regulatory filings this week, Charney reports he now owns 74.6 million shares as of Friday. Previously, his stake was 27 percent.

Charney also sent a letter last week to the board seeking a meeting of stockholders on Sept. 25 for the purpose of expanding the board to 15 members, according to the filing. The company said in a regulatory filing late Monday that Charney’s request is “invalid” and “improper” because he was suspended as CEO and relieved of all powers to act on the behalf of the company.

American Apparel on Saturday adopted a shareholder rights plan, commonly called a “poison pill,” a day after a bid from Charney to increase his control. A poison pill seeks to prevent hostile takeovers by diluting the value of a would-be acquirer’s investment.

The documents, filed last Friday, showed that he had entered into a five-year loan agreement with investment firm Standard General LP to increase his stake. According to the terms, Standard General is loaning Charney money to buy at least 10 percent of American Apparel’s outstanding shares. The loan will use Charney’s stock as collateral.

On June, 18, the American Apparel’s board fired Charney as chairman and suspended him as president and CEO. The board cited “alleged misconduct.”

Charney has been the subject of several lawsuits alleging inappropriate sexual conduct with female employees.

He has acknowledged having sexual relationships with workers, but said they were consensual.