California Hustlin'; The shameless appeal of American Apparel.

Byline: Jennifer Ordonez (With Andrew Romano and Joanna Broder)

Spend an hour talking to Dov Charney, founder of American Apparel, and he is likely to start yelling: about his passion for his edgy clothing company, for sexy women, for being a "hustler," in the best sense of the word. At some point, Charney--37, single, waifish, styled to resemble a '70s-era porn star, with full facial hair--will offer to show you his underwear, which he designed, and maybe more. "Sex is good. Business is good. I don't see why I should be ashamed," he says. And if he didn't seem so earnest, it would all seem like one very exhausting shtik.

Charney is American Apparel's best asset--and may be its biggest liability. In 1997, with a business partner and a loan from family in his native Montreal, Charney launched a wholesale T-shirt operation in L.A. after an earlier business failed. He opened his first retail store in 2003 and has added 131 since; 60 more are expected by the year-end. Charney says he turned a profit on revenue of $250 million in 2005. To take the business to the next level, he's now seeking an initial $40 million cash infusion to fund his vision: providing urban hipsters with logo-free cotton clothing they don't have to shop for in malls. But so far no takers. Maybe that's in part because Charney says a "sexually free" workplace fosters his company's innovation. It can also foster lawsuits. One former employee accuses Charney of crude language and walking around in his briefs; he's fighting the allegations. Last year he settled a suit accusing him of, among other things, sexually suggestive language. Charney also admits to exposing a body part--not his elbow--eight times to a reporter.

Explicit behavior aside, Charney's business is an industry anomaly that might make investors skittish. "There's a generational disconnect between the financial community and our customer and the way our business works," he says. All of American Apparel's items are made at the plant in L.A. where he started the ...