American Apparel CEO Dov Charney: A Tarnished Hero?

PHOTO: Dov Charney, chairman and chief executive officer of American Apparel Inc., stands for a portrait in a company retail store in New York on July 29, 2010.
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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.

But he has other problems, too. Charney currently fighting two sexual harassment lawsuits and has been hit with multiple sexual harassment suits from former employees -- women accusing him of a sexually hostile work environment.

One employee, Kimbra Lo, then 19, alleged in her suit that Charney "grabbed her and violently kissed her, then forced her to perform various sexual acts," among other, more graphic accusations.

Another woman, Irene Morales, 21, who worked as an American Apparel store manager, filed a $260 million lawsuit last year claiming Charney made her his sex slave when she was 17. The case was ordered into arbitration in March.

Charney denied ever sexually harassing an employee and said that all of the accusations against him are "baseless" and "meritless."

"What has happened is high-profile people, such as myself, are often in the fire line of that kind of stuff," he said.

He has never lost a sexual harassment lawsuit, and never paid any money in the cases against him.

"I don't really want to get into the details of any of these lawsuits," Charney said. "Only tell you that some of the lawsuits have involved people I've never met or not employees themselves."

But, Charney admitted, he has had relationships with his employees in the past.

"I mean my first employee, when I was 18 years old," he said. "Of course, I didn't pay her. She was my girlfriend. We used to drive T-shirts up and down the border."

"Love can happen, people break up. The thing is, we want people focused on their work," he added. "If it doesn't get in the way of work-- But really, it's not our business to be for the government or for a corporation running people's lives, even the lives of important people."

When asked, as head of the company, if he felt dating an employee was inappropriate, Charney said, "Well, 57 percent of Americans meet their spouse at work and it's perfectly normal and natural that love can take place within the context of the workplace."

It's a workplace that stands out in America, not just for its provocative ads and the sexual harassment allegations facing the boss, but for how Charney runs his business. Maybe it's a sign of the times that American manufacturing is coming back, in part, under the leadership of a man like Charney -- no button-down Carnegie or Vanderbilt, but imbued with the same audacious dreams.

"American Apparel will live beyond my lifetime," he said. "We'll be a heritage brand. It's like liberty, property, pursuit of happiness for every man worldwide. That's my America."

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