A scathing 60 Minutes report in March 2015 revealed that Lumber Liquidators was working with Chinese mills that didn’t comply with the California Air Resources Board’s regulations on formaldehyde emissions, and shareholders filed a securities fraud suit against the company’s board. Three officers have since left, including the CEO and CFO and another was fired. This fast exit may work in shareholders’ favor and bolster a negligence claim.
John Coffee, a professor at Columbia Law School, said that “If they’re getting fired because they knew the company was importing noncompliant products - products that didn’t comply with California law - that would be a case in which you can say ‘Gee, that shows it was negligent’... The case against those fired officers would be somewhat stronger,” according to Law360.
Lumber Liquidators got caught when its record-high margins came under suspicion. They explained the profits were based on creative “sourcing initiatives,” when in fact they came from illegal wood harvesting in Russia, and they partnered with Chinese mills that made flooring products with dangerous levels of formaldehyde. The securities class action filed by the shareholders also claims that Lumber Liquidators and its executives “misled investors in financial reports and conference calls by attributing its increasing gross margins to improvements in its business partnerships.”
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Meanwhile, Sharon decided to file a Lumber Liquidators complaint with an attorney and is hopeful there will be some compensation forthcoming, at least to cover costs for a new floor.
There are currently more than 100 consumer class actions against Lumber Liquidators coordinated before U.S. District Judge Anthony Trenga in the Eastern District of Virginia. The shareholder lawsuits are separate from the consumer class actions. Since the securities class action was filed in November 2013, Lumber Liquidators fell to less than $20 a share, from a peak of $119.