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SEC: Lumber Liquidators to pay $33 million in penalties in formaldehyde fraud

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TOANO, Va. — Lumber Liquidators agreed to pay $33 million in penalties for misleading investors about formaldehyde in its laminate flooring products, the SEC announced Tuesday, March 12.

In early 2015, Lumber Liquidators made false public statements in response to a “60 Minutes” report that showed undercover video of the company’s suppliers saying that they provided Lumber Liquidators with products that did not meet regulatory standards, the SEC said.

Lumber Liquidators told investors that third-party test results of its flooring products proved that it was compliant with formaldehyde emissions standards. It said it had stopped sourcing materials from suppliers that were unable to meet these standards, the SEC said.

Lumber Liquidators, one of the largest flooring companies in America, knew that its largest Chinese supplier had failed third-party formaldehyde emissions testing, the SEC said. The SEC’s order also said that despite knowing that the people in the undercover “60 Minutes” video were factory employees of its suppliers, Lumber Liquidators falsely told investors that they were not.

“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 2015 “60 Minutes” report and subsequent investigations caused Lumber Liquidators’ sales to plunge. Its CEO also resigned amid criticism. The company eventually halted the sale of the flooring sourced from China.

The Centers for Disease Control and Prevention issued a report in 2016 that raised its estimate of the cancer risk from formaldehyde in some laminate flooring to between 6 and 30 cancer cases per 100,000 people exposed to the flooring. It had previously estimated between 2 and 9 cases.

In 2018, Lumber Liquidators paid $36 million to settle class-action lawsuits brought by customers who bought the laminate between 2009 and 2015. The company did not admit wrongdoing in the settlement agreement.

“We have cooperated with this investigation and are pleased to have reached a resolution with the U.S. Attorney’s Office, DOJ, and SEC,” CEO Dennis Knowles said in a statement Tuesday.

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