(Reuters) - Hedge fund Standard General LP has sued American Apparel Inc’s ousted Chief Executive Dov Charney for the first time, the latest move in a bitter legal saga that began after he was fired in December.
American Apparel suspended Charney six months before firing him, alleging misuse of company funds and a failure to stop a subordinate from posting false blog entries about former employees.
The latest lawsuit, filed by American Apparel stakeholder Standard General on Monday, alleged that Charney was yet to fulfill promises made to the hedge fund and sought an injunction to stop his “meritless” and “destructive actions” against the firm.
The lawsuit stems from a deal that Charney and Standard General struck in June last year, in which the former CEO gave up control of his voting rights in lieu of a loan to increase his stake in American Apparel so he could gain control of the clothing company he founded.
Standard General alleged that Charney had put up his original stake in American Apparel as collateral and promised to surrender the new shares he bought as well, but failed to do so.
It also said Charney had failed to disclose events that could impact his ability to meet loan obligations, such as a regulatory investigation into his conduct as CEO.
Charney’s lawyer Keith Fink called Standard General’s lawsuit a “smokescreen” to distract from a lawsuit Charney filed in June accusing the hedge fund, American Apparel and others of conspiring to push him out.
In that lawsuit, Charney said Standard General had “fraudulently induced” him to give it control over his shares and reneged on its promise to help him regain control of American Apparel.
“Standard General hasn’t even answered the fraud allegations from the other lawsuit,” Fink said in an emailed statement.
Standard General’s lawsuit accused Charney of intentionally engaging in a campaign to diminish the value of the shares he had pledged as collateral, and said the firm was at risk of “severe, irreparable harm” in the absence of an injunction against him.
The hedge fund also denied promising to return him to the CEO position, and said it was seeking Charney’s share and warrant certificates, compliance on covenants for the loans and for him to keep his pledged collateral free of liens and encumbrances.
It also asked him to disclose if he was near insolvency or unlikely to meet financial obligations.
Reporting by Jeffrey Dastin in New York and Sruthi Ramakrishnan in Bengaluru, Editing by Simon Jennings