Lumber Liquidators Relabeled Boxes, CCO Resigns

Lumber Liquidators released a statement June 1 to explain itself after a Seeking Alpha article published May 29 claimed the company was covering the labels on some of its engineered hardwood flooring products from China. 

Meanwhile, Chief Compliance Officer Ray Cotton resigned, making him the third executive to leave Lumber Liquidators in the last month.

The article, written by someone short selling Lumber Liquidators stock, accused the retailer of relabeling some of its Chinese-made engineered flooring boxes in order to hide the vendor identities. The coverup was needed, the author alleged, because Lumber Liquidators found noncompliance at particular vendors’ facilities.

The company’s stock was at $21.67 before the article was published. It fell to $20.39 at the end of that day.

The company admitted in a filing with the SEC on Monday that it did relabel “certain engineered hardwood flooring products,” but had a different explanation.

“Lumber Liquidators discovered in an internal review that a supplier had included an inapplicable CARB certificate number on the label for a limited number of engineered hardwood flooring products. This labeling issue does not impact the CARB Phase II emissions compliance for these products. After consultation with our advisors and out of an abundance of caution, we held the products until the labeling could be revised. The revised labels remove the inapplicable certificate number, but retain the supplier's statement that the product is CARB Phase II compliant. We have advised the California regulators that we relabeled the products to address this matter.”

The company’s stock has rebounded since it released the statement, but is still down more than 68 percent since a “60 Minutes” report, which claimed the company’s Chinese-made laminate had unsafe levels of formaldehyde, was announced on Feb. 24. As of press time, it was at $21.91.

Cotton’s resignation was discovered by Lumber Liquidators short-seller Whitney Tilson on June 2. He noticed that Cotton’s LinkedIn page no longer listed Lumber Liquidators as his employer. Business Insider and the NY Post were able to confirm with the company that Cotton had left.

Cotton was hired in February 2014 following the September 2013 raid by federal agencies at the company’s headquarters seeking evidence that it sourced wood from illegal logging operations in Russia’s Far East forests.

Earlier this year, Lumber Liquidators said the Department of Justice is seeking criminal charges against the company under the Lacey Act.

The company has not released an official statement regarding Cotton’s departure, which follows the abrupt resignation of the company’s CEO Robert Lynch on May 21 and CFO Daniel Tarrell.