Lumber Liquidators pays $33M to settle fraud charges

Lumber Liquidators lied to investors and the public when it denied that its laminate flooring contained high levels of formaldehyde following an explosive “6o Minutes” undercover sting, federal prosecutors said Tuesday.

The Toano, Va., company was charged with fraud and slapped with $33 million in fines and penalties as part of a deal that also settled the criminal case against Lumber Liquidators — four years after the company’s denials made headline news in March 2015.

In a 53-page deferred prosecution agreement, the Justice Department claims that Lumber Liquidators knew that company’s Chinese laminate products had failed tests when it denied CBS news program’s report that the same products couldn’t pass California emissions standards.

In fact, the company tried to discredit the report through a public relations campaign using denials from the suppliers that its own law firm didn’t believe because the supplier had once offered bribes to a Lumber Liquidators inspector and “other company employees,” according to the agreement.

“Lumber Liquidators lied to investors and to the public about its compliance with formaldehyde regulations for the flooring it sold — all to protect its stock price,” Assistant Attorney General Brian A. Benczkowski said in a statement.

The action, which was filed with a parallel civil fraud suit from the Securities and Exchange Commission, claims Lumber Liquidators knew that its home products ran afoul of chemical regulations going back to 2014.

In early 2015, when executives were told that one of their suppliers wouldn’t pass regulatory muster, Lumber Liquidators decided to ignore the warnings from its own counsel and ordered 1.64 million square feet of flooring, according to the complaint.

When the company tried to do its own investigation in China, the suppliers denied that the laminate wasn’t compliant, according to the agreement. But even Lumber Liquidators own law firm didn’t believe the results, since they weren’t allowed to tour the factory and suppliers had allegedly offered bribes to inspectors, according to the complaint.

The 60 Minutes report, which aired in March 2015, included undercover footage taken inside Chinese suppliers that showed the company’s laminate floors wouldn’t pass emissions standards set by the California Air Resources Board.

After it aired, unnamed Lumber Liquidators executives were concerned about their falling stock price, and decided to use the questionable testimony they had obtained during their own investigation to try to stop it from falling more.

“Have you decided on issuing a press release yet? Another 20% down in the stock will require a strong response in my opinion,” one executive wrote in an email, according to the order.

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