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July 4 (Bloomberg) -- American Apparel Inc. investor FiveT Capital AG, once the retailer’s largest outside shareholder, has cut its stake by about 79 percent amid a battle between the chain’s board and its founder.

FiveT disclosed yesterday in a filing that it cut its American Apparel holdings to 5.54 million shares from 26 million earlier this year. The Zurich-based firm now holds about 3.2 percent of the stock, down from almost 13 percent.

FiveT came to American Apparel founder and then-Chief Executive Officer Dov Charney’s rescue earlier this year, buying about half of the shares in a stock offering that the retailer used to raise cash and stave off a default. Johannes Minho Roth, FiveT’s 35-year-old founding director, at the time said Charney was a visionary and that he had a “very positive view” of him.

“There’s a lot of different possibilities of what direction the company will take and we wanted to take off some of the risk,” Roth said yesterday by phone. “But we remain bullish on the company,” or FiveT wouldn’t have kept the 5.54 million shares.

American Apparel’s board suspended Charney last month with a plan to fire him in 30 days after an investigation into his conduct that was said to have found alleged misconduct including retaliating against a former employee that sued him for sexual assault to misuse of corporate funds.

FiveT Profit

FiveT made a profit of $2.69 million on the American Apparel shares that it bought for 50 cents in March and sold on June 11 and June 23 at prices ranging from 63 cents to 70 cents apiece.

American Apparel rose 4.8 percent to about 87 cents at the close in New York yesterday. The shares have gained 36 percent since Charney’s suspension on June 18.

Charney has refused to walk away from the company. He boosted his stake to 43 percent with the help of a loan from hedge fund Standard General LP. Still, to get the loan, Charney agreed to give up voting rights, a person familiar with the situation has said. Standard General also made no assurances it would push for him to return as CEO. The firm is currently in talks with American Apparel about reshaping the board with independent directors who could choose a different CEO, the person said.

A new board would have to consider the results of the directors’ investigation into Charney. The board had conducted a months-long probe into Charney’s actions before suspending him. The company has since enlisted FTI Consulting Inc. to ramp up the inquiry and plans to release findings to the public, a person familiar with the situation has said.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net To contact the editors responsible for this story: Kevin Orland at korland@bloomberg.net Cecile Daurat

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