March 12, 2019 / 4:36 PM / 3 months ago

Lumber Liquidators to pay regulators $33 million in flooring scandal settlement

FILE PHOTO: A Lumber Liquidators store sign is shown outside one of the companies retail locations in San Diego, California March 2, 2015. REUTERS/Mike Blake

(Reuters) - Lumber Liquidators Holdings Inc has agreed to pay a $33 million criminal penalty to settle federal charges it misled investors about the safety of its laminate flooring made in China and sold to U.S. customers.

The settlements announced by the U.S. Department of Justice and U.S. Securities and Exchange Commission on Tuesday came four years after Lumber Liquidators was alleged to be selling products with illegally high levels of formaldehyde, a known carcinogen.

The Justice Department settlement includes a deferred prosecution agreement, under which the government agreed not to prosecute Lumber Liquidators for securities fraud so long as the company upgrades oversight and cooperates with its ongoing probe for three years.

The hardwood flooring retailer knew that products made by its largest Chinese supplier had failed third-party formaldehyde emissions testing, but the company had misled investors, regulators said.

“The relief obtained today, along with the criminal fine imposed by the Department of Justice, ensures that the company will forfeit all profit and pay a heavy price for the false assurances it provided to the market,” Marc Berger, Director of the SEC’s New York Regional Office, said.

The amount the company will pay represents Lumber Liquidator’s net profits from the sale of 100 percent of its Chinese laminate from January through May 2015, U.S Attorney’s office said.

As part of the settlement, the company has also agreed to implement rigorous internal controls and cooperate fully with the Department of Justice’s ongoing investigation, including its investigation of individuals, the attorney’s office added.

Lumber Liquidators Chief Executive Officer Dennis Knowles said in a statement the company was “pleased” with the settlement.

Shares in Lumber Liquidators fell 2.5 percent after the news. The stock has lost nearly 80 percent of its value since a CBS “60 Minutes” report questioning the safety of Lumber Liquidators’ products aired in March 2015.

Reporting by Siddharth Cavale in Bengaluru

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