The ousted founder of American Apparel has agreed to cede control of his stake in the company to an investment firm, people familiar with the matter said Thursday.
The agreement means Dov Charney may end up playing no role in leading the struggling clothing chain despite being its largest shareholder, sources said.
On Tuesday, Charney, who was pushed out by the company board on June 19 amid allegations of bizarre behavior and sexual harassment of employees, disclosed that he had raised his stake from 27 percent to 43 percent, under a partnership with investment firm Standard General.
But under an agreement between the two, Standard General will decide key matters, including company strategy and leadership, said the sources, confirming accounts in US media.
The New York Times quoted Charney as saying he handed over ownership control to Standard General "so they could protect the company and all of its stakeholders, particularly the employees."
After being founded in 1989 by Charney, American Apparel grew aggressively, billing itself as a "sweatshop-free" manufacturer that manufactured all its clothes inside the United States.
It became known for very racy advertising pitched at teens, the main customers.
But the company has reported losses the last three years and has seen its stock price tumble from $15 to less than $1.
Charney, who was known for sometimes walking around his factories in his underpants, has been accused of sexual harassment by several of his employees. The board is investigating Charney's conduct.
On June 19, American Apparel said it suspended Charney and notified him he would be fired in 30 days "for cause."
Charney filed papers Monday with the American Arbitration Association to try to get his job back, according to sources close to the case.
American Apparel shares gained 4.8 percent to 87 cents on Thursday.