Controversies
A 2013 report by the Environmental Investigation Agency revealed that Lumber Liquidators' indiscriminate and poor sourcing practices resulted in the destruction of critically endangered tiger habitats and forests.[13]
Further investigation led to the conviction of a Russian supplier in 2014. Shortly after the conviction, Lumber Liquidators lost about 20% in stock value for potential violation of the Lacey Act.
During 2015, the company was the subject of a 60 Minutes report.[14][15] The broadcast accused the company of selling an unsafe type of Chinese-made laminate flooring that contained dangerous levels of the carcinogen formaldehyde that exceeded emissions standards.[16][17] Hedge fund manager Whitney Tilson had shorted the company's stock after it more than doubled in a year, and paid $5,000 to test three pieces of wood; he said that formaldehyde levels in the wood he tested were two to six times the California Air Resources Board limits.[18] Shares of the company dropped 25% the day after the broadcast; eight months later it was down 75%.[19][20] The company ultimately paid a $33 million penalty.[21]
A number of class action lawsuits were filed by customers, due to the formaldehyde issue and other customer service issues.
On June 16, 2015, Lumber Liquidators announced the "unexpected" resignation of its CEO, Robert Lynch. It also announced the termination of its Chief Merchandising Officer, William Schlegel. It also declared it would discontinue the sale of laminate flooring products manufactured in China.[22]
The company's founder, Tom Sullivan, served as interim CEO following the resignation. He was replaced in November 2015 by John Presley.[23]
On October 22, 2015, Lumber Liquidators pleaded guilty in federal court to the illegal importation of hardwood flooring.[24] In February 2016, a federal judge sentenced the company to $13.15 million in penalties, consisting of $7.8 million in criminal fines, $3.15 million in civil forfeiture, $1 million in criminal forfeiture, and $1.2 million to conservation organizations.[25] It was the largest financial penalty ever issued for violating the Lacey Act of 1900.[26][27]
