CEO Swindled Workers, Shareholders

by Bill White

The dismissal of American Apparel CEO Dov Charney from his board seat at the Jewish fashion retailer in June places American corporate corruption in a microcosm.

Dov Charney founded American Apparel as a T-shirt wholesaler and built the company’s customer base through ad campaigns featuring scantily clad women. While some might find this alone questionable, so far Charney’s exploitation of the lowest common denominator was nothing unusual.

In 2006, Charney took American public with a legal con. He acquired majority stake in a publicly traded shell company, Endeavor Acquisitions Corp, then had Endeavor buy American Apparel. In doing so, Charney avoided any kind of financial scrutiny of American Apparel and all of the consumer protections which usually follow a public listing on the stock exchange. Again, the tactic is questionable, but nothing new. It’s exactly what a “sharp” Jewish businessman with a questionable bottom line would do.

American Apparel’s retail sails quadrupled, and its profits increased around 250% . Then a federal raid on its clothing factories in Los Angeles in 2009 revealed an uncomfortable fact. American Apparel was making clothing in the United States using illegal immigrant sweatshop labor. Half of American Apparel’s factory staff were deported. American Apparel had to start paying its laborers living wages. The company began losing money hand over fist. Yet no one in management was charged with violating federal immigration or labor laws. Like all the other tricks, the illegal labor was just another “sharp practice.”

Then Charney went insane. As losses began to mount, Charney noticed that staff were occasionally double-paying invoices. He fired his entire accounting staff and began to demand that he sign all checks personally, right down to the wages of the lowest retail store cashier. Checks began to back up for weeks. A new shipping software package had problems, so Charney set up a bed on his loading docks to monitor shipping. And then to raise money, Charney decided to sell innocent investors—suckers, one might say—61 million more shares in the company. Charney pocketed $30 million.

It would be nice to say that Charney got what he deserved—confiscation and distribution of his assets and some time recuperating in a federal prison cell. But he didn’t. He was removed as chairman and CEO of American Apparel, but he kept all the money and still retains a 22% stake in the company. The sharp business practices, the evasion of federal scrutiny in his stock offerings, the illegal immigrant labor, the selling of worthless shares to trusting and naïve stockholders—in the Judaeo-capitalist system, all of this is acceptable.

It is, after all, what made Dov Charney’s apparel so American.