Lumber Liquidators to Pay $33 Million for Misleading Investors

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Lumber Liquidators

Home flooring giant Lumber Liquidators has agreed to pay $33 million for its role in misleading investors that its’ laminate flooring products were compliant with formaldehyde emissions regulations.
In 2015 investigative reporters from 60 Minutes discovered that the company’s laminate flooring sourced from China exceeded the formaldehyde emissions limits set by the California Air Resources Board (CARB).
The company entered into a deferred prosecution agreement relating to charges of securities fraud.

The case was “primarily focused on the fact that Lumber Liquidators knowingly filed false and misleading statements to investors broadly denying the allegations of the 60 minutes investigation.”
Following a Department of Justice (DOJ) ruling last week, Lumber Liquidators agreed to pay a fine of $19.1m, and restitution of $13.9m, of which up to $6.1m will be paid to the Securities and Exchange Commission (SEC).
The DOJ noted that “employees involved in wrongdoing either were terminated or resigned from the company, and the company replaced its executive management team with experienced executives who have displayed a commitment to building an ethical corporate culture.”
In a statement posted on the company’s website, Lumber Liquidators’ chief executive officer Dennis Knowles said it has made “sweeping changes” during his time as CEO and will continue to incorporated “extensive remedial measures” that include the implementation and enforcement of a “comprehensive compliance, ethics, and In reporting program, as well as training and guidance on relevant policies and procedures.”
In 2016 the company successfully defended a Proposition 65 Enforcement action that alleged that laminate flooring sold by the company exposed consumers to formaldehyde emissions without providing a clear and reasonable Prop 65 warning. The outcome in favor of Lumber Liquidators was based on compliant warnings placed on the products prior to checkout.
Ironically, the bounty hunter group that sued Lumber Liquidators was speculating that the company stock would plummet when the 60-Minutes report aired in 2016.  It is unknown how much the bounty hunter group lost after shorting Lumber Liquidators stock.

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