Two months after it was featured in a CBS “60 Minutes” investigation, Lumber Liquidators disclosed Wednesday that it was facing possible criminal charges over wood flooring products made in China.
According to a regulatory filing, U.S. authorities began an investigation in September 2013 and, in recent communications, the Department of Justice “indicated that it is seeking criminal charges under the Lacey Act,” which bans illegally sourced wood products.
In a March 1 broadcast, “60 Minutes” said Lumber Liquidators’ laminate flooring made in China contains high levels of formaldehyde. The Virginia-based flooring retailer said that since the show aired, it has received a grand jury subpoena from the U.S. Attorney’s Office in Richmond and a letter from the U.S. Securities and Exchange Commission.
“[W]e believe the focus of both the U.S. Attorney investigation and SEC staff inquiry are connected to recent concerns about our laminate flooring sourced from China,” Lumber Liquidators said in the SEC filing.
Lumber Liquidators’ shares plunged more than 19% to $26.97 in trading Wednesday. The company also disclosed that net sales fell 12.8% in March to $89.4 million, citing “unfavorable allegations surrounding the product quality of our laminates sourced from China.”
For the period ended March 31, Lumber Liquidators lost $7.8 million, or 29 cents per share, falling short of Wall Street expectations.
The company also said its CFO, Daniel Tarrell, will resign in June. He has been finance chief since October 2006. Tarrell will be replaced by Ernst & Young LLP executive Gregory Whirley on an interim basis. At E&Y, Whirley was responsible for the firm’s relationship with the Public Company Accounting Oversight Board, among other things, said Fox Business.
Lumber Liquidators has said its flooring is safe and has spent heavily on promotions to offset the fallout from the “60 Minutes” report and on home testing kits for customers. But it is also facing more than 100 class-action lawsuits alleging it made false statements about the chemical content of wood flooring products.
“Costs related to legal and professional fees and a regulatory accrual were significant in the first quarter,” CEO Robert Lynch said in a news release.
Lumber Liquidators said its best estimate of the probable loss that may result from the criminal investigation is $10 million, but “there is at least a reasonable possibility” that a larger loss may be incurred.