Beleaguered clothing business American Apparel is facing another class action lawsuit linked to allegations of mismanagement and misrepresentation of the company’s finances.
The action has been filed in the US District Court for Central California by law firm Barroway Topaz Kessler Meltzer & Check, on behalf of those who bought shares in American Apparel between 20 December 2006 and 17 August this year.
The suit charges the company and certain officers and directors with violating the Securities Exchange Act 1934 on a number of counts.
These include allegations of misrepresentation linked to the enforced departure of more than 1,600 illegal workers from its Los Angeles after a US Immigration crackdown – and the knock-on impact on productivity.
The action also alleges that American Apparel failed to indicate that the company lacked adequate internal and financial controls, following the resignation of Deloitte Touche as its official auditor earlier this year.
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By GlobalDataAmerican Apparel also faces legal action from another firm, Levi & Korsinsky, and was recently subpoenaed by the US Attorney’s Office in New York, as well as receiving an enquiry from the Securities and Exchange Commission.
Preliminary figures for the company’s delayed second quarter results released in mid-August suggest a steep fall in retail sales, leading to a loss of several million dollars and increased debts.
That led American Apparel to raise doubts about its future viability, adding that it needed urgently to renegotiate its credit terms before a potential debt default at the end of September.
