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.