In the months leading up to Dov Charney’s surprise ouster from American Apparel, one key executive had been fearing for his job: the one who is now heading the company.
John Luttrell, who last week was promoted to interim CEO from his longtime role as chief financial officer, had been getting increasing heat from Charney over the clothing chain’s accounting controls, sources told The Post.
“There were a lot of [alleged] overpayments to vendors across the board, and some [alleged] minor embezzlement and kickbacks” by lower-level employees, a source close to the situation told The Post. “Dov was on a mission to root it all out, and he didn’t appear to be working with [Luttrell].”
Charney declined to comment. American Apparel declined to comment or make Luttrell available for comment.
On top of his sex antics, Charney has long been blasted for micromanaging. One source close to the company called his recent clampdown the latest in “a series of situations where he is rushing from department to department to correct the mistakes of other execs.”
Charney’s aggressive spring clean — in which he insisted on signing the company’s checks himself, slashed inventory and capital spending and fired a number of high-salaried employees — was, by the board’s account, effective, insiders said.
When directors revealed to Charney at a June 18 board meeting that they planned to fire him, they told him that “the financial position of the company was better because of the cost cutting, no doubt about it,” according to a source close to the company who attended the meeting.
The directors emphasized that “the numbers for (the current fiscal quarter) look good, where they should be,” the source said, adding that Charney’s dismissal “is not about that.”
American Apparel’s board, which hasn’t yet begun a formal search for a new, permanent CEO, instead is firing Charney for alleged misconduct that includes allowing a blog to be published in early 2011 with naked photos of Irene Morales, a former employee who had alleged sex harassment.
Citing the alleged misconduct, the board is firing Charney for cause, a move Charney has filed to block in arbitration. If the board succeeds in ousting the 45-year old company founder, the controversial executive would lose as much as $25 million in severance.
Last week, Luttrell’s salary was hiked 70 percent to $750,000 and he was awarded 350,000 shares in the company.
Gone unnoticed in the Charney-board drama, insiders said, is that tensions between Charney and Luttrell had been rising over the CFO’s performance.
Last spring, a Luttrell-led $206 million bond offering fell short of its targeted amount, resulting in unexpectedly high interest rates and fees.
The shortfall forced American Apparel to seek additional financing from Lion Capital. As reported by The Post, the move came back to haunt the cash-strapped retailer Thursday when Lion refused to grant a waiver on nearly $10 million in debt that was thrown into default by Charney’s ouster.
“This is the worst day of my career,” Luttrell told Charney after the bonds priced in March 2013, according to a source close to Charney.
Luttrell, who previously held similar posts at Old Navy and Wet Seal, felt so bad about the botched deal that he offered to surrender his annual bonus, according to the source.
Charney left Luttrell’s bonus intact — but the same couldn’t be said of their working relationship.
The pair tangled months later over another Luttrell project: the construction of a high-tech distribution center in La Mirada, California. The center’s opening had been delayed by five months, several sources said.
By late August, Charney, in an unusual move, swooped in to personally fix the snafu — even living at the warehouse around the clock for three months.
Charney’s aggressive tactics initially spurred chaos, but he got the facility working smoothly by the fall, according to several sources.
The mess, which the company disclosed last November, has ended up costing tens of millions of dollars in overruns and lost sales, the sources said.
“If you’re going to let me go, let me preserve my dignity,” Luttrell told Charney last September in the parking lot outside the troubled facility, according to one source close to Charney.
Although displeased with Luttrell, Charney kept him on as CFO partly to avoid “the optics” of losing such a key executive, another source said.
In March, Charney was in talks with turnaround firm Alvarez & Marsal, and suggested to a board member that a partner at A&M might be a candidate to replace Luttrell, the source said.
Around the same time, however, the board began its secret investigation of Charney with law firm Jones Day. Earlier this week, co-chairman Allan Mayer told The Post that Luttrell wasn’t involved in the probe.
FTI Consulting, a firm that has been monitoring American Apparel’s cash since last year on behalf of credit-line provider Capital One, was tapped this week to assist the board’s probe of Charney, the company confirmed.
Last month, Charney told Luttrell he believed that the services of FTI, which was billing the retailer $40,000 a month, were no longer needed because of the retailer’s recent financial improvement, according to a source close to Charney.
“Don’t worry,” Luttrell told Charney, according to the source. “We’re going to phase them out.”