SEC investigates American Apparel’s auditor swap

US fashion retailer
has received a federal subpoena and is also under
investigation by the Securities and Exchange Commission relating to the
circumstances of its change in auditors.

The US Attorney’s Office for the Southern District of New York submitted a
subpoena to the company after Deloitte resigned just one year into its work with
its audit client. American Apparel’s former auditors Marcum have replaced

has also contacted Apparel to investigate the matter, the company
said in its quarterly filing to the US stock exchange today.

In response, Apparel said that no further events require disclosure in
relation to the periods through to the date that its financial statements were

Apparel revealed that it incurred a “substantial loss” from its operations in
the three months ended 31 March 2010, and may not have sufficient liquidity to
sustain operations for the next 12 months.

It was probable that it would break a covenant with UK lender Lion Capital,
which in turn could stop the retailer from borrowing under its Bank of America
credit agreement.

“Management continues to develop a plan intended to improve the operating
performance and the financial position of the company,” it said.

The plan includes lowering inventory levels by slowing production,
potentially sub-leasing parts of its stores and store closures.

Further reading:

quits as auditor to American Apparel

Apparel CFO steps down

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