American Apparel securities fraud class action avoids dismissal

Posted on: June 24th, 2013 by Steve Larson

Stocks and sharesA California federal judge Monday tentatively refused to toss a putative class action claiming American Apparel Inc. lied to its investors about its financial performance, saying the plaintiffs adequately pleaded claims that the clothing company made misleading statements about its financial controls.

At a hearing, U.S. District Judge Margaret M. Morrow said the shareholders made plausible allegations that “tend to support the position” that American Apparel withheld negative financial information from accounting firm Deloitte, which rendered its 2009 annual report misleading.

In a lengthy tentative ruling, the judge also indicated she will not toss claims against the company’s founder and chief executive officer, Dov Charney, and executive Adrian Kowalewski, alleging that they made misleading statements about American Apparel’s compliance with federal immigration laws.

Judge Morrow also tentatively allowed claims against private equity firms Lion Capital LLP and Lion Capital (Americas) Inc., claiming they were involved in misleading statements the clothing company allegedly made to investors.

The case is In re: American Apparel Inc. Shareholder Derivative Litigation, case number 2:10-cv-06352, in the U.S. District Court for the Central District of California.