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Five Dumbest Things on Wall Street: Nov. 14

Charney's Sideshow

American Apparel's (APP - Get Report) ringmaster has another legal circus on his hands.

A former employee filed a wrongful termination suit against the retailer last week, alleging he was fired for refusing requests by renegade CEO Dov Charney to pump up figures on the company's balance sheet.

Roberto Hernandez, who handled accounts payable for the company, charges that in 2006 Charney "demanded that Mr. Hernandez pad the inventory" in an effort to spruce up the company for sale to outside investors.

American Apparel, a private company at the time of the allegation, went public later that year. (The stock fell 35% to $4.50 Wednesday on news of the suit).

The normally gregarious Charney refused to comment on the matter, opting instead to deny the allegation in a press release, saying the company would "vigorously defend itself and its shareholders in this contemptible action." Charney claims Hernandez was more involved with low-level data entry than accounting and therefore had no opportunity to cook the books.

Moreover, Charney contends this latest legal assault is just another shot in a long war against the company by Hernandez's lawyer Keith Fink, who represents another ex-American Apparel employee suing Charney for alleged sexual harassment. That particular suit, which Charney also is fighting, alleges he conducted a "reign of sexual terror" at the company, parading around the office in his underwear and even taking employees to strip clubs to do market research.

Charney, who successfully mixed sex with showmanship to grow his chain to 230 locations, blames the media for focusing on "sideshows" instead of the company's growth.

That's a lot of blarney, Charney. This is a freak show that is freaking out your shareholders.

Dumb-o-meter score: 85 -- For a company that doesn't sell suits, it sure has a lot piling up.
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