He concedes that there was one point when he ran through the factory wearing his underwear, but says it was to entertain staff and film a spoof video. In a deposition, he said he “frequently” had been in his “underpants” because he was “designing an underwear line” while Nelson was working at the company. He says, “I’m very proud of my underwear.”

The sexual harassment suits torment Charney, if for no other reason than because they divert attention away from what he sees as his utopian American factory.

At the end of the 19th century, the U.S. finally got around to establishing its first immigration laws. Since then, much of the debate about who should and shouldn’t be allowed in has centered on California, where the gold rush and the construction of railroads drew a large influx of laborers from China and Mexico. Though the U.S. has dabbled in deportation methods in order to control a growing population of illegal immigrants, federal authorities have mainly turned a blind eye. But in recent years, illegal immigrants have become a potent political symbol. The blind eye seemed to open abruptly last summer, when Michael Chertoff, secretary of homeland security, announced that federal authorities would crack down—not on workers but on employers.

Federal immigration raids on companies around the nation have increased, with 3,900 administrative arrests made since October 2007 and more than 1,000 criminal charges filed. States, too, have joined in the effort, with more than 175 bills introduced into legislatures throughout the country this year. In May, 389 employees were arrested in a meatpacking plant in Postville, Iowa, and 230 sentenced to jail terms. (See “A Beef With the Rabbis”). In another instance, in late August, 350 workers were arrested at an electronics-manufacturing firm in Laurel, Mississippi.

Some estimates put the illegal-immigrant population of the U.S. at nearly 12 million. Most illegals perform at least a portion of their work either under the table or with the help of false documentation. If there’s a ground zero for this issue, it’s Los Angeles. By some economists’ estimates, 1 million of the city’s 10 million inhabitants are there illegally.

So in January, employers in Los Angeles gasped when federal authorities raided Micro Solutions Enterprises, a sleepy, long-established printer-­cartridge manufacturer based in East L.A. that employed 800 workers. Federal officials said that 138 employees were undocumented, but owner Avi Wazana told his customers that the company had been verifying the legal status of all new hires through federal programs for almost a year.

“It’s very nudge-nudge-wink,” says Jack Kyser, the chief economist of the Los Angeles County Economic Development Corp. “What you have is a large immigrant workforce. And if you are an undocumented immigrant, all you need is to get the documents necessary to get a job. They go in, and the employers look at it, but employers have to be careful.” That’s because state laws prohibit companies from asking prospective workers for more than two forms of identification, and they risk civil suits if they do.

This situation spurred California businesses to begin quietly lobbying public officials to push for change. In March, Los Angeles Mayor Antonio Villaraigosa wrote a letter to Chertoff criticizing I.C.E. agents for raids on “established, responsible employers” in the city; he asked the secretary to focus on those with a record of labor violations. Meanwhile, in April, Gavin Newsom, San Francisco’s mayor, said he would not cooperate with the federal crackdown.

In a recent interview, Chertoff defended his hard-line approach, saying, “We are not going to be able to satisfy the American people on a legal temporary-worker program until they are convinced that we will have a stick as well as a carrot.”

For most of the apparel business, illegal immigration is no longer an issue, since 97 percent of the clothing purchased in the U.S. is manufactured in foreign countries. In the world of T-shirts, all Charney’s major competitors—Hanes, Gap, and Fruit of the Loom—make their goods abroad.

Charney is in his office at 8:30 at night, typing on his computer. On the seventh floor of the 800,000-square-foot factory that houses most of American Apparel’s design, manufacturing, shipping, retailing, and customer-service departments, Charney’s spacious corner office functions as the control tower from which he wields his power in his own peculiar, Willy Wonka-ish way. He constantly calls out to anyone who passes by in the hallway, regardless of whether they are on their way to the bathroom or, worse, on their way home. “Hey, hey! What’s going on?” he shouts, always with a question. “What are we running out of? What’s selling? Did you get me those mannequins I asked for? Where are we at with that neckline?”

Charney’s desk faces a line of cheap black-leather chairs that could have been lifted from a nail salon. Behind him is a honeycomb arrangement of shelves where he has tucked items of importance—from vintage advertisements showing bare-breasted Polynesian women to a letter he wrote at age 11 asking for a refund for his not-quite-right bag of potato chips. There is also a handwritten list of what he believes fashion is made of: fantasy, function, status, anxiety. The shelves are lined with books with such titles as A History of the English-Speaking Peoples, Population Studies, and Understanding Judaism.