The filing in the local U.S. District Court seeks class-action status for shareholders that the Rosen Law Firm argues were misled by American Apparel's leaders regarding how its ability to hire and keep workers would effect its bottom line.
Last year American Apparel had to let go of up to 1,800 workers who could not prove they were in the country legally. According to Rosen:
The Company's hiring practices were improper and beginning in July 2009, American Apparel revealed that it was being investigated by the U.S. Immigration and Customs Enforcement agency regarding the Company's compliance with U.S. immigration law. On August 17, 2010, the Company announced it expected to report a loss of $5 million to $7 million in the second quarter of 2010 on net sales of $132 million to $143 million. According to the announcement, a significant factor in such losses was "lower labor efficiency at the Company's production facilities in the second quarter of 2010 compared to the prior year period. The lower labor efficiency was primarily a result of the hiring of over 1,600 net new manufacturing workers during the second quarter of 2010." As a result, the Complaint alleges that the price of American Apparel stock declined, damaging investors.
Phillip Kim, an attorney at Rosen, explained to the Weekly that the shareholder lawsuits against American Apparel would eventually be rolled into one. "At the end of the day the court will combine the cases and the largest shareholder involved will be lead plaintiff," he said.
The clothing maker, which has about 280 retail stores worldwide, has been challenged recently by $120 million in debt, a possible delisting by the New York Stock Exchange, and slowing sales. However, reports surfaced this week that the company was in talks with a corporate-turnaround firm that could improve its fortunes.