Embattled American Apparel Inc (NYSEMKT:APP) founder a Chief Executive Officer Dov Charney, ousted from the sexually aggressive retailer for assisting with nude photos of a former employee and romantic partner to be published on a web site,  has handed over his entire stake and voting rights in the struggling retailer to a friendly hedge fund for negotiations.

American Apparel

Charney failed to gain majority control of the company

Reuters is reporting that Standard General LP, after handing control of their shares to Charney, had all the voting shares handed back after Charney failed to gain majority control of the company, two sources close to the matter told Reuters. Charney’s goal was to gain majority control of American Apparel, but the struggling retailer countered with an anti-takeover poison pill plan that prompted a change in strategy.

American Apparel Inc (NYSEMKT:APP) had refused to meet with Charney since he was suspended but did agree to negotiate with the New York-based Standard General over the retailer’s corporate governance structure and its troubling financial condition, the report said, citing sources. American Apparel declined to comment.

Charney was accused of inappropriate use of corporate funds as well as assisting in the dissemination of nude photos of an ex-employee who had accused Charney of making her his “sex slave.” Charney had countered the charges were an attempt to extort cash.

American Apparel’s poison pill adoption

According to regulatory filings earlier this week, Charney himself had intended to pursue discussions with the board and called for a special shareholder meeting on Sept. 25.  While he was building commitments from stock holders, American Apparel Inc (NYSEMKT:APP)l adopted a “poison pill” takeover defense, triggered when shareholders who own more than 15 percent of the stock acquire an additional 1 percent or more.

Standard General has a history investing in distressed companies, with RadioShack Corporation (NYSE:RSH) being one such example, and they had a particularly close a relationship with American Apparel and its now ex-CEO. The hedge fund provided a loan this past March when the retailer was in need to make an interest payment to its largest bondholder, Monarch Alternative Capital, the report said, citing a third source familiar with the matter.

Amid the high profile battle between, American Apparel Inc (NYSEMKT:APP) employees expressed concern over the company’s future and a possible rumored buyout, the sources told Reuters.  Last week, a board director dedicated several hours at its main manufacturing facility in Los Angeles reassuring employees the company remained concerned about employees welfare and denied rumors about the sale, one of the sources said.