“60 Minutes” just aired a brutal report outlining health and safety violations by Lumber Liquidators.
The report said that Lumber Liquidators is selling laminate flooring made in China with levels of formaldehyde higher than currently allowed under California law.
Moreover, California’s standards are set to take effect nationwide later this year.
Formaldehyde is a known carcinogen that “60 Minutes” says can cause myeloid leukemia and nasopharyngeal cancer at high levels, and respiratory issues as well as eye nose and throat irritation at low levels. Formaldehyde is also the chemical used to temporarily preserve human and animal remains.
For its report, “60 Minutes” went to factories in China that produce laminate flooring for Lumber Liquidators that the company says is “CARB 2” compliant, meaning that it complies with California standards.
The newsmagazine sent an undercover team to a factory in China to speak with factory managers who admitted that product being produced for Lumber Liquidators was labelled “CARB 2” compliant when it fact it was not.
When showed some of this footage during an interview with “60 Minutes” Anderson Cooper, Lumber Liquidators chairman and founder Tom Sullivan said the company would be in that factory “tomorrow.”
On Twitter, CNBC’s Ryan Ruggiero posted the company’s response to “60 Minutes” report, in which Lumber Liquidators said it will now review its process at three mills.
On the company’s earnings conference call on Wednesday of last week, Lumber Liquidators CEO Robert Lynch cautioned investors, saying, “We now believe the news program 60 Minutes will feature our company in an unfavorable light with regard to our sourcing and product quality, specifically related to laminates.”
Last week, Lumber Liquidators shares fell more than 20%.
The company also disclosed in its annual 10-K filing with the SEC that it is under investigation from the Department of Justice.
In its filing, the company said:
On September 26, 2013, sealed search warrants were executed at our corporate offices in Toano and Richmond, Virginia by the Department of Homeland Security’s Immigration and Customs Enforcement and the U.S. Fish and Wildlife Service. The search warrants requested information, primarily documentation, related to the importation of certain of our wood flooring products. Since then, we have been cooperating with the federal authorities, including the Department of Justice (“DOJ”), in their investigation. In recent communications, the DOJ indicated that it is contemplating seeking criminal charges under the Lacey Act. We expect to continue to communicate with the DOJ regarding its intentions and possible courses of action in this matter. At this time, we do not have enough information to estimate a reasonably possible loss or range of loss that may result from actions by the DOJ as a result of its investigation.
“60 Minutes” noted this disclosure in its report.
At the top of its report, “60 Minutes” highlighted two plaintiffs in a lawsuit against Lumber Liquidators — Denny Larson executive director of Global Community Monitor, a non-profit, and Richard Drury, an environmental attorney — and noted that their suit was being backed by short sellers, or investors betting that the price of Lumber Liquidators stock will fall.
“60 Minutes” also talked to hedge fund manager Whitney Tilson, who has shorted Lumber Liquidators in the past after noting an explosion in the company’s profit margins, which is unusual in Tilson’s view for a company that sells what is essentially a commodity.
After almost doubling in 2014, shares of Lumber Liquidators are down more than 50% since the start of 2014.
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