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The end of American Apparel?

Daily Ticker

Retailer American Apparel (APP) voted late Wednesday to oust its highly-controversial founder Dov Charney. In a statement, the company said Charney was removed as Chairman of the Board effective immediately. The board also moved to fire Charney as CEO and President pending the outcome of an ongoing investigation into alleged misconduct. The company said he will be terminated for cause after a contractually-required 30-day warning period.

Charney has been the subject of multiple sexual harassment lawsuits over many years. A former employee accused Charney of being a “sexual predator” who kept her as a teenage sex slave, according to Reuters

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Yahoo Finance’s Jeff Macke says the move has been a long-time coming. “This case will be like the last episode of Seinfeld, just this endless series of allegations that have been chasing him around pretty much throughout his tenure there.” Macke also says Charney “is the brand” and “it’s pretty hard to argue that he’s not a distraction - that it hasn’t become a problem for the organization to have the CEO, the face and the embodiment of all things standing for this brand constantly in court based on sexual allegations. I’m not sure what your defense is to say, ‘No, that’s really not a problem for the company.’”

Allan Mayer, American Apparel’s newly-appointed co-Chairman told the Los Angeles Times the decision wasn’t easy, but necessary, saying, “we felt the need to do what we did for the sake of the company.” Mayer also told the Times the board launched an investigation after “new information came to light.”

Charney founded American Apparel’s predecessor company in 1989. He ran the business out of his dorm room at Tufts, according to the Times. Anonymous sources told the Times that Charney “was totally taken by surprise” and will “fight like hell to get his company back, but he won’t succeed.”

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Macke agrees and believes this is trouble for American Apparel’s business. “He is the essence of what American Apparel is. That’s both the curse and a blessing,” Macke says. “He’s been a creative visionary, but some of his ads have stepped over the line. The mission is a little confused and in specialty retail, in general, it's very hard to come back. Under the best of circumstances, it’s hard to recapture that zeitgeist and… it’s going to be really hard to get that mojo back.”

American Apparel has some 10,000 employees and 249 stores. Macke says it’s still a pretty decent-sized company and “there is some meat on the bone” for potential buyers. But it may not be enough to save the company and while the stock is rebounding on news of Charney’s ouster, investors should beware.

“Can you oust him? Probably. Will it be a long fight? Sure. Is it worth it as an investor to chase this stock down here? No,” says Macke.

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