Lumber Liquidators paying $33 million in fines
Flooring specialty retailer Lumber Liquidators has agreed to pay $33 million in penalties to resolve a charge of securities fraud from March 2015.
The Toano, Va.-based company is paying a fine of $19.1 million and a restitution of $13.9 million in a deferred prosecution agreement with the Justice Department’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of Virginia.
The Securities and Exchange Commission also announced charges against Lumber Liquidators Holdings for making fraudulent misstatements to investors. The Department of Justice agreed to credit $6 million in fines paid to the SEC as part of its agreement.
In a statement, the SEC said the charges stem from Lumber Liquidators’ false public statements in response to media allegations that the company was selling laminate flooring that contained levels of formaldehyde exceeding regulatory standards.
The SEC also said that Lumber Liquidators made public statements in response to a “60 Minutes” news program episode that showed undercover video of Lumber Liquidators’ suppliers stating that they provided the company with products that did not comply with regulatory requirements.
“In its response, Lumber Liquidators fraudulently informed investors that third-party test results of its flooring products proved compliance with formaldehyde emissions standards and that it had discontinued sourcing materials from suppliers that were unable to meet these standards,” the SEC said in March 12 statement.
The SEC also noted that “In reality, Lumber Liquidators knew that its largest Chinese supplier had failed third-party formaldehyde emissions testing and was unable to produce documentation showing regulatory compliance” and the retailer falsely stated that its suppliers were not depicted in the video.
“Pressured by negative publicity, Lumber Liquidators misled investors about its product testing and regulatory compliance programs,” said Marc Berger, director of the SEC’s New York Regional Office. “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.”
The Department of Justice said that employees involved in the wrongdoing were either terminated or resigned from the company. Additionally, Lumber Liquidators has replaced its executive management team with “experienced executives who have displayed a commitment to building an ethical corporate culture."
Lumber Liquidators CEO Dennis Knowles said the company has made sweeping changes during his tenure as lead executive and will continue to take steps with the new executive team to better Lumber Liquidators.
"We have cooperated with this investigation and are pleased to have reached a resolution with the U.S. Attorney's Office, DOJ, and SEC," said Knowles. "We appreciate that the government recognizes the changes in the company's leadership and the strengthened organization that we have built. Lumber Liquidators has undergone a significant transformation in recent years and today is a new company led by an entirely new management team that is committed to our customers, compliance, transparency, and accountability across our organization."
Lumber Liquidators operates more than 400 stores across the country.
"While we will continue to improve our compliance processes, having these matters behind us allows us more resources to focus on our customers, great product lines, and our strategic vision," Knowles said.
In the meantime, the SEC said that it is continuing its investigation.
The Toano, Va.-based company is paying a fine of $19.1 million and a restitution of $13.9 million in a deferred prosecution agreement with the Justice Department’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of Virginia.
The Securities and Exchange Commission also announced charges against Lumber Liquidators Holdings for making fraudulent misstatements to investors. The Department of Justice agreed to credit $6 million in fines paid to the SEC as part of its agreement.
In a statement, the SEC said the charges stem from Lumber Liquidators’ false public statements in response to media allegations that the company was selling laminate flooring that contained levels of formaldehyde exceeding regulatory standards.
The SEC also said that Lumber Liquidators made public statements in response to a “60 Minutes” news program episode that showed undercover video of Lumber Liquidators’ suppliers stating that they provided the company with products that did not comply with regulatory requirements.
“In its response, Lumber Liquidators fraudulently informed investors that third-party test results of its flooring products proved compliance with formaldehyde emissions standards and that it had discontinued sourcing materials from suppliers that were unable to meet these standards,” the SEC said in March 12 statement.
The SEC also noted that “In reality, Lumber Liquidators knew that its largest Chinese supplier had failed third-party formaldehyde emissions testing and was unable to produce documentation showing regulatory compliance” and the retailer falsely stated that its suppliers were not depicted in the video.
“Pressured by negative publicity, Lumber Liquidators misled investors about its product testing and regulatory compliance programs,” said Marc Berger, director of the SEC’s New York Regional Office. “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.”
The Department of Justice said that employees involved in the wrongdoing were either terminated or resigned from the company. Additionally, Lumber Liquidators has replaced its executive management team with “experienced executives who have displayed a commitment to building an ethical corporate culture."
Lumber Liquidators CEO Dennis Knowles said the company has made sweeping changes during his tenure as lead executive and will continue to take steps with the new executive team to better Lumber Liquidators.
"We have cooperated with this investigation and are pleased to have reached a resolution with the U.S. Attorney's Office, DOJ, and SEC," said Knowles. "We appreciate that the government recognizes the changes in the company's leadership and the strengthened organization that we have built. Lumber Liquidators has undergone a significant transformation in recent years and today is a new company led by an entirely new management team that is committed to our customers, compliance, transparency, and accountability across our organization."
Lumber Liquidators operates more than 400 stores across the country.
"While we will continue to improve our compliance processes, having these matters behind us allows us more resources to focus on our customers, great product lines, and our strategic vision," Knowles said.
In the meantime, the SEC said that it is continuing its investigation.