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Lumber Liquidators Settles with SEC Over Formaldehyde

The Chinese-made flooring, riddled with Formaldehyde, had been installed in hundreds of thousands of homes nationwide.

Retail flooring giant Lumber Liquidators boasts annual sales in the billion-dollar range. It has more than 400 retail locations and sells just as many flooring varieties – everything from hardwood and bamboo to laminate. And it’s that laminate that has hung like an albatross around Lumber Liquidators’ neck since 2015, when CBS’s 60 Minutes launched an investigation into the company’s supply chain, which revealed Chinese-made laminate floors sold by the retailer contained massive amounts of formaldehyde.

A hedge fund manager sparked the whole thing in 2013, when he became suspicious of the company’s higher-than-average profit margin, prompting him to short the stock and suggest that Lumber Liquidators might be doing something illegal. When he made his theory public, he received a tip about the quality of the company’s Chinese laminate.

In CBS’s shocking expose, undercover investigators posed as buyers at the factories of the company’s Chinese suppliers, revealed employees openly admitting they used boards with higher levels of the carcinogen in Lumber Liquidators’ laminate flooring and it saved the company 10-15 percent. The plants’ employees also admitted to labeling the flooring boxes as being compliant with California’s laws, which are the most stringent in America, even though they knew they weren’t.

Back in the US, investigators bought more than 150 boxes of laminate flooring and had them tested in certified labs. The only flooring to fail the test was the Chinese-made laminate from Lumber Liquidators, and it was shown to contain 6-7 times the California state standard of the chemical but, in some cases, it was close to 20 times the level allowed.

The problem with formaldehyde, according to the report, is that – despite the fact that it is contained within the glue inside the boards – it still leaks into the air. The National Toxicology Program and World Health Organization classify formaldehyde is a known carcinogen while the National Cancer Institute says it “may cause Leukemia.”

According to CBS, how much homeowners would inhale with this flooring “depends on how much formaldehyde is in the glue and how much ventilation is in the home.”

Last year, Lumber Liquidators settled a class action lawsuit with buyers of the Chinese-made flooring which, one expert estimated, had been installed in hundreds of thousands of homes nationwide. But the saga didn’t end there. This week, it was announced that the flooring retailer also finally settled with the SEC, who took the company to task over what amounted to a securities violation.

The $33 million judgement serves as a penalty for what the Department of Justice says were “false and misleading statements” from the company to its investors. According to Brian Benczkowski, Assistant Attorney General of the Justice Department’s Criminal Division, “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.”

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