Crap E-Mail From An American Apparel Lawyer

After we noted that American Apparel is still experiencing pretty serious problems, spokeslawyer Peter Schey wrote in to set us straight on some stuff. And to say that “Abercrombie and Finch” totally had to pay a much bigger immigration fine!

From: Peter Schey

To: [email protected]
Date: Tue, Oct 5, 2010 at 2:59 AM
Subject: http://jezebel.com/5655272/american-apparel-saved-from-bankruptcy—for-now

Hi Jessica,

I am an attorney and spokesperson for American Apparel. I think your recent article, American Apparel Saved From Bankruptcy-For Now, gets very little right.

It is true that Lion Capital has modified its loan agreement with American Apparel in ways that should allow the company to comply with its loan covenants going forward. Lion, a company highly experienced in assessing the long-term value of companies in which it invests, sees the opportunity for long-term future growth in American Apparel.[1]

The company has not been “wracked” by “allegations of financial irregularities s [sic] that have drawn federal subpoenas.” The US Attorneys [sic] Office in Los Angeles[2] several months ago issued a subpoenas for documents regarding the circumstances under which the company’s auditor resigned, but that subpoena was withdrawn[3] because the SEC issued a similar subpoena. The SEC subpoena specifically states that the SEC is not alleging any wrongdoing on the part of American Apparel or any of its employees. The SEC is obligated to review the circumstances of the auditor’s resignation. We anticipate that the review will be favorably concluded fairly soon and will show absolutely no wrongdoing by American Apparel or its employees.

The article also mentions American Apparel’s past late filings with the stock exchange and threats of having its stock delisted because of those late filings. Currently, American Apparel has an extension to November to file its second quarterly report and there is no current threat of delisting its stock.[4] The company expects to meet the November deadline now that it is working with a new auditor that previously performed its audits and is therefore familiar with its finances.[5]

The company has recently hired additional managers and is continuously strengthening its management team. Globally retail sales have declined a few percentage points[6] but have definitely not plummeted[7], as your article claims. Wholesale and internet sales are up[8], as are many of the retail stores’ sales[9].

There was never an immigration “raid” as your article claims. Like over 1,000 other companies during the past year or so, American Apparel had a routine I-9 audit conducted by the Immigration and Customs Enforcement (ICE). CEO Dov Charney did everything possible throughout this audit to protect the rights of American Apparel’s workers. After reviewing about 7,000 employee files, the government did not find a single case in which the company had knowingly or even negligently hired unauthorized immigrant workers. The company paid a small fine for some technical paperwork violations (such as completing an I-9 form more than 3 days after the date of hire). The fine it paid was about 3% of the I-9 audit fine recently paid by Abercrombie and Finch [sic].

The company was required to terminated [sic] approximately 1,600 workers and it has been more difficult than expected to fill those positions with experienced garment workers. Nevetheless, [sic] the terminated workers are being replaced and new workers trained in American Apparel’s production methods.

At bottom, American Apparel had two ways to approach its recent challenges: One approach suggested by some analysts are the old Wall Street methods of going offshore, firing workers, lowering wages, reducing worker benefits, etc. The other approach is for American Apparel to stick to its core values and continue with domestic production, remain loyal to its workers, not cut wages or benefits, continue its commitment to sound environmental practices, etc. American Apparel has opted for the ethical approach. It will build revenues not by running offshore, or by firing thousands of people with families to support, or by cutting fair wages, but rather by improving the efficiency of production and increasing retail store sales. Dov is in this for the long haul. In a few short years he has built a company from a storefront selling T-shirts to a global brand with around 10,000 employees and retails stores in over 20 countries. Its [sic] easy for someone who has never accomplished anything close to that to write articles throwing mud at him.[10]

Don’t be surprised if despite occasional drama and cliff-hangers, American Apparel is still employing thousands of people and selling millions of garments long after Jezebel gets tired of writing negative pieces with predictions of impending doom that never come true.

Best wishes,
Peter Schey
323 XXX-XXXX

Now, we’re not above being corrected — far from it! — but a few things about Schey’s totally sic defense struck us as…a shade bird-brained.

1. Is that why Lion charges American Apparel 17% interest?
2. Actually, as far as we can tell, it was the United States attorney for the Southern District of New York who decided to investigate American Apparel. And the SEC.
3. Was it? If that was reported anywhere, neither we (nor Google) could find it. This article from a few days ago makes no mention of the Department of Justice “withdrawing” its probe.
4. We’ve reported that the New York Stock Exchange has threatened to delist the stock. Twice. The Wall Street Journal characterizes this as “American Apparel’s struggle to avoid delisting by the New York Stock Exchange.” But what do they know, right?
5. Best of luck with that.
6. Down by around 3%, if the numbers in American Apparel’s preliminary Q2 report are to be believed.
7. American Apparel’s same-store sales (that’s a measure of sales that controls for store openings, which skew the stats) have been declining year-on-year by high-single-digits or low-double-digits for every month since February, 2009, for which the company has made records available. For the quarter ended June 1, again, American Apparel’s preliminary report has same-store sales falling another whopping 16%. Seventeen consecutive months of declining same-store sales, plus a drop in overall net sales? Call us CNN Money if you must, but that sounds more like a serious slump than a “decline by a few percentage points.”
8. Actually, no — online sales are not up. More like the opposite of that! They’re down by 10.2% year-on-year.
9. Of course, it’s also true that “many” of American Apparel’s retail locations’ sales are — well, plummeting. Dov Charney even had to personally guarantee the leases for five American Apparel flagships. Potato/potato.
10. And fun!

For as long as American Apparel hangs on the cliff’s-edge of bankruptcy, we hope we’ll be around to tell you about it.