American Apparel CEO Dov Charney: A Tarnished Hero?

April 27, 2012— -- American Apparel CEO Dov Charney is one of the most controversial -- and hyperactive -- entrepreneurs in the country.

Despite allegations of sexual harassment, immigration issues for some of his workers and financial troubles at his company, Charney has also been called a hero for making his business a purely "made-in-America" operation.

To really understand how Charney functions, "Nightline" went to the American Apparel factory in downtown Los Angeles, where Charney, 43, led a frantic, high-speed tour. Every hop, skip and step of the way, he reveled in the thrumming, throwback business of making clothes in the USA.

"We weave, we buy it, this is pure America," he said. "I love this business. ... I love the texture of clothes. I like when something fits well. I get an adrenaline rush watching the trucks come and go."

American Apparel, which Charney founded at age 20 in 1989, makes clothes not overseas in Asia, but at his 800,000-square-foot factory in L.A. Roughly 3,000 people work there, and each employee gets health benefits and incentives. It's no sweatshop.

"Our average wage, I heard, in the last quarter was $12 or $13 per hour, which is fantastic, in context for this industry," Charney said.

The garment business runs in Charney's blood. His grandmother was an immigrant seamstress in a factory in Montreal.

"These people are no different," Charney said, referring to his factory workers. "They're mothers and fathers, they're grandparents and they're brothers and sisters, and moms and dads, and they're part of the family."

But it's not how Charney does business that has landed him in hot water in the past. It's how he markets it.

American Apparel's advertisements have become infamous for capturing young models in moments of vulnerable sensuality in seemingly causal situations. It's what Charney calls "our look."

While these suggestive POLAROID photo-ads have come under fire from critics, they have also put Charney and American Apparel at the heart of debate in the fashion industry about what might be too sexy.

PHOTOS: American Apparel Ads Through the Years

"The problem is that in the whole fashion world, they are taking very young girls and making them look older and it's completely contrived," Charney said.

Charney said American Apparel is "different than our competitors" because his models aren't wearing pounds of make-up.

But why should shots of girls looking more like real people be more disturbing than the artificiality of high fashion?

Charney said, "It's the natural beauty."

"This person looks like a girl you would meet. She looks like our customer," he said.

And it works. The clothing company makes roughly $500 million in annual revenue. It's a rare occurrence to see a growing textile company these days in the U.S., a country that once dominated the garment business. But Charney thinks those days are coming back.

"Labor costs in China, for example, are skyrocketing," he said. "Transportation costs are skyrocketing, and it's only going to get worse. ... So the people that have the most efficient manufacturing are going to win, so that's what we are practicing."

But American Apparel has been losing money for three years, in part, because of production problems that arose after almost 2,000 workers had to be let go after a government investigation in 2009 found they were in the country illegally. Charney said things will turn around for his company by 2015.