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TheStreet Open House

The 5 Dumbest Things on Wall Street: March 11

5. American Apparel's Chief Lawsuit Officer

"Sex slave" isn't a term commonly thrown around in C-suites, that is unless you work for American Apparel (APP).

The t-shirt retailers', uh, eccentric CEO Dov Charney is once again in the hot seat -- this time with a former employee claiming he forced her to perform sexual acts while she was working at the company as a teenager.

Irene Morales of Brooklyn is seeking $250 million, claiming in April 2009 Charney invited her to his Manhattan apartment, opened the door wearing nothing but underpants and forced her to perform sexual acts for several hours, making her a "prisoner." Over the next eight months Morales, who at the time was 18, said she was forced to perform many more sex acts with Charney at the threat of losing her job.

American Apparel and its board also is being named in the suit, as Morales says they knew or should have known Charney, 42, was a "sexual predator."

Charney's lawyer issued a statement saying Morales "left the company without complaint and resigned with a letter of gratitude regarding her positive experience at the company." She also signed a severance agreement saying she had no pending claims against the company and would submit any future claims to "confidential binding arbitration." Boilerplate legal language is so reassuring to shareholders.

This isn't the first lawsuit filed against Charney, who has made a name for himself more for his very public alleged indiscretions, rather than his flailing t-shirt business. Maybe there's an argument that Charney's eclectic persona is partially to thank for lifting American Apparel up the retail ranks. But for a public company, Charney's reputation has become more of a liability then an asset and it begs the question, why is he still allowed to hold a position of power?

Regardless of whether he is actually guilty doesn't change the fact that American Apparel is in desperate need of a new leader, and one who doesn't insist on making himself a magnet for lawsuits. It's unlikely Charney, who owns about a 52% stake in the retailer, would be in the running for "CEO of the Year" anyway.

Over the past year, American Apparel's issues have ranged from a possible covenant breach to immigration probes and charges from its accountant claiming it withheld vital information. It is also facing a prolonged severe sales slump, and has repeatedly warned of the company's ability to continue as a "going concern."

Charney has made American Apparel synonymous with sleaze. But there's a fine line between racy and down-right pornographic, and it seems the company has finally straddled it.

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