When most people think “disadvantaged,” an accused serial harasser in a $5.1 million Los Angeles mansion isn’t usually what comes to mind.
But federal records show that well-heeled former American Apparel CEO Dov Charney’s new company landed a two-year contract to make tens of thousands of masks for the Air Force—and, he claims, millions more face covers for a bevy of federal agencies. Unbelievably, he did it all while certified as a “small disadvantaged business,” a designation intended to uplift entrepreneurs of color.
Among the opportunities afforded to such companies is the chance to secure contracts without being the lowest bidder, and experts say the federal government gives them preference as part of a larger imperative to allocate funds to less-established vendors.
“We rose to the cause,” he said, naming the Centers for Disease Control, the Federal Emergency Management Agency, and the Department of Health and Human Services among his customers, on top of the Air Force. “I have a very supportive staff, my people walk through fire with me, together, we were making these masks.”
Charney told The Daily Beast that a slew of federal orders for personal protective equipment have helped Los Angeles Apparel, the company he started in 2016 after his defenestration from his former firm, to more than triple the scale of its operations in the eponymous city during the COVID-19 pandemic. He now purports to be the biggest employer in South-Central L.A., despite county officials temporarily shutting down his main factory in June after more than 300 workers tested positive for the novel coronavirus.
Charney claimed that nondisclosure agreements prevented him from discussing his pricing or precise business arrangements, though he claimed to be filling “multi-million unit” orders—and he previously gave the Los Angeles Times the figure of $2 per mask. The only contract reflected on the database USASpending.gov is the deal with the Air Force, but the businessman maintained he has filled the other orders as a subcontractor.
But he fervently denied that he sought or obtained any advantage through the “small disadvantaged business” designation, or even that he applied for it at all—even though federal records indicate Los Angeles Apparel self-certified in the program. Instead, he claimed this was an error on the part of the authorities.
"They must have put that on there on their own,” he asserted. “To put it like we’re trying to trick people like we’re a minority—we don’t do that.”
It’s a bit of a mystery why the government would do business with Charney at all, given his rather controversial past. His notoriously sleazy advertising tactics helped American Apparel reap $634 million in sales in 2013. But his former employees alleged even grosser acts, including holding a 17-year-old sales clerk prisoner in his apartment as a “sex slave,” choking a store manager after calling him a “fag” and “wannabe Jew,” forcing himself on multiple models, sending some workers explicit texts and photos, calling others “Filipino pigs,” and saving videos of sex acts on his work computer.
American Apparel claimed that Charney’s behavior cost the company nearly $10 million in litigation and cited it, along with what it described as his financial mismanagement, among the reasons for his ouster in 2014. The deeply indebted clothing-maker declared bankruptcy the subsequent year.
Charney has long denied these accusations, characterizing them as efforts to smear and extort him. Speaking to The Daily Beast, he asserted that both the press and the Los Angeles County Department of Public Health have mistreated him and his company.
“Everybody’s going around, ‘oh, there’s the guy that sexually misconducted everybody, oh, he’s a sex guy, that dirty guy,’” he said. “‘He’s dirty.’”
No federal agency or military unit contacted by The Daily Beast responded to a request for comment. The federal government defines a “small disadvantaged business” as one whose majority owners are “socially and economically disadvantaged,” a status usually reserved for racial and ethnic minorities.
“African Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans are presumed to qualify,” Small Business Administration guidelines state.
Charney, a native of Montreal and an alumnus of Connecticut’s elite Choate Rosemary Hall boarding school, is none of the above.
Nick Schwellenbach, senior investigator with the nonprofit Project on Government Oversight, explained to The Daily Beast that Congress created the “Small Disadvantaged Business” classification as part of a larger effort to allocate federal dollars to less well-established vendors. For a decade, the Department of Defense—which encompasses the Air Force—has aimed to devote 5 percent of all its contracting and subcontracting funds to businesses within this category.
“Is this company truly disadvantaged, as it’s commonly understood in the federal government?” he wondered. “If they're not, they may be screwing over a truly disadvantaged business.”
Schwellenbach complained that the system has long been rife with fraud. Contractors, he asserted, often disguise their true ownership to obtain the preferences granted to less privileged outfits. Authorities indicted five men last spring in a wide-ranging alleged scheme to misrepresent their security firm company as a small disadvantaged business in order to score a contract with the Marine Corps. Earlier in 2019, the Department of Justice reached a $3.6 million settlement with a pair of construction firms for a similar scheme involving deals with the military and the Department of Agriculture.
But Schwellenbach said federal agencies overlook such malfeasance when it allows them to more easily hit their set-aside targets.
“If it helps them meet their quotas, it also creates a situation where there might be a bit of blindness to reality,” Schwellenbach said. “It’s just a system that's been abused for a long time and it continues to be.”
Richard Loeb, an adjunct professor of contract law at the University of Baltimore Law School, noted that, under normal circumstances, absolutely no owner with a net worth exceeding $750,000 can receive the small disadvantaged certification. During national emergencies such as the present one, Loeb said that threshold rises to $1.32 million.
Despite his troubled finances—largely a consequence of American Apparel’s 2016 unraveling—Charney’s assets remain considerable. They include the Garbutt House, a 20-room historic mansion where he resides in the Silver Lake neighborhood of Los Angeles, most recently assessed at more than $5.1 million. Securities and Exchange Commission filings and court documents show that for years he held a 18.75-percent stake in the ownership entity for Los Angeles Apparel’s sprawling knitting facility in South Los Angeles, a structure the county values at some $3.75 million.
In 2017, Charney projected that the privately held Los Angeles Apparel would break $20 million in sales the ensuing year.
“How [Charney] got to be ‘small disadvantaged’ is beyond me,” Loeb said. “Honestly, there are probably so many cases of improper self-certification, there just aren't enough people to debar and suspend all the firms that do it.”