Lumber Liquidators' laminate flooring formaldehyde levels were the subject of a "60 Minutes" investigation. The report found Lumber Liquidators' laminate flooring contained unsafe formaldehyde levels.
Lumber Liquidators stock plunged almost 25 percent this morning before markets opened after a Sunday night “60 Minutes” investigation reported the company’s laminate made in China had levels of formaldehyde that was as much as 13 times over the legal limit set by the California Air Resources Board (CARB). Trading in the stock was halted but started again around 11:15 a.m. ET, according to CNBC.
Reporters went undercover for “60 Minutes” at Lumber Liquidators’ Chinese laminate suppliers' mills and were told by facility managers that the laminate products, though labeled compliant with CARB Phase 2, were not.
The investigation also referenced a lawsuit filed by Global Community Monitor Executive Director Denny Larson and environmental attorney Richard Drury.
Larson and Drury sent 150 boxes of laminate flooring purchased in California to certified laboratories to check the products’ formaldehyde emissions. Laminate from Lowes and Home Depot, as well as Lumber Liquidators’ laminate flooring that was made in America, all had acceptable levels of formaldehyde.
But the average level of formaldehyde in Lumber Liquidators’ laminate flooring made in China was, on average, six or seven times the normal level, as defined by CARB Phase 2. Some laminate flooring products had formaldehyde as high as 20 times the normal level.
The “60 Minutes” team had similar results during their own formaldehyde tests. They purchased 31 boxes of Lumber Liquidators laminate flooring from Virginia, Florida, Texas, Illinois and New York. Of the 31 samples, only one box had product that was CARB Phase 2 compliant. Some were more than 13 times the normal level.
Lumber Liquidators founder Tom Sullivan told “60 Minutes” that he did not accept the methodology used for the tests and told reporter Anderson Cooper, “Our goal is to sell a good product at a good price, and we don’t get the price by skimping on anything. We get it by low overheard, huge volume, and being very efficient at what we do; we’re never going to sell something unsafe.” But when confronted with the video footage of the undercover investigators at the Lumber Liquidators Chinese suppliers, he told Cooper, “We will investigate immediately.”
Lumber Liquidators currently reports five lawsuits pending, according to its most recent annual filing with the U.S. Securities and Exchange Commission.
None of those lawsuits pertains to chemical emissions of the company’s hardwood flooring. However, federal agencies did raid Lumber Liquidators headquarters in September 2013 to search for evidence that the company’s flooring products were sourced from illegal logging operations in the Russian Far East forests.
Lumber Liquidators told investors during a conference call last week that it expects the Department of Justice to pursue criminal charges from the investigation.
A 2013 report from the Environmental Investigation Agency titled “Liquidating the Forests: Hardwood Flooring, Organized Crime and the World’s Last Siberian Tigers,” claims that the retailer’s flagship wood flooring products, the Bellawood brand, comes from trees cut down illegally in protected Siberian tiger habitat.
Last month, senior executives from one of Lumber Liquidators Russian timber suppliers were convicted in Russia of 15 counts of illegal logging.
Two of the lawsuits currently facing Lumber Liquidators, including the lawsuit filed by the Global Community Monitor, concern formaldehyde levels in the company’s laminate flooring products. The second lawsuit was filed by Joseph Balero in December.
Two other lawsuits had been filed against Lumber Liquidators that alleged excessive and unsafe levels of formaldehyde. One of those lawsuits was withdrawn in February 2014. The other was settled out of court “with prejudice for an immaterial amount” in May.
Another lawsuit, also filed in December, alleges that the company’s bamboo product was neither “extremely durable” or “free of defects,” as the company claimed.
The remaining lawsuits come from shareholders who allege the company misstated its financials.
The company has maintained its innocence in all the pending lawsuits.
As of the time of this posting the company stock was trading at $40.35 per share. The stock fell last week Wednesday by 26 percent, and at the end of trading on Friday was listed at $51.59.
Lumber Liquidators' stock hit its peak price of $119.44 on Nov. 15, 2013. Its all-time low was $8.33 on Oct. 31, 2008.
Update — March 3, 2015: Lumber Liquidators responded to the "60 Minutes" investigation through an SEC filing. Their statement in full:
“Lumber Liquidators is a leader in safety, as evidenced by our track record of providing our wide range of products to two million satisfied customers across America.
We comply with applicable regulations set by the California Air Resources Board (“CARB”), which is currently the only regulator of composite core emissions. Although the CARB regulations only apply in California, we adhere to these standards everywhere we do business. Every manufacturer of fiberboard cores used in our products is certified in accordance with CARB regulations. We have documentation to support each step of our production process, including vendor agreements, vendor invoices, CARB certificates, and test results, to serve as further proof that our processes, practices and products are compliant across the board. Independent third-party test results are available on our safety website at www.lumberliquidators.com/safety.
We believe that 60 Minutes used an improper test method in its reporting that is not included in CARB’s regulations and does not measure a product according to how it is actually used by consumers. Our laminate floors are completely safe to use as intended. In our attempt to be fair and transparent, we provided significant testing results to 60 Minutes, including the results of the random testing performed on products from each of our laminate suppliers. We also went to great lengths to document issues between the validated test method and that used by 60 Minutes. Our Chairman addressed the differences and our position on the test methodology but 60 Minutes chose not to include it.
After becoming aware of the nature and content of the 60 Minutes story, we immediately reached out to the Chinese suppliers included in the story. The suppliers have confirmed that all products provided to Lumber Liquidators have been and are CARB compliant. The suppliers could not verify the identity of the individuals appearing in the videos. One of the suppliers featured questioned whether the product shown was actually from its factory. We randomly test each of our six laminate suppliers in China using unannounced audits and all products tested are compliant and safe. Again, the results of the third-party testing are on our website.
As 60 Minutes noted, these attacks are driven by a small group of short-selling investors who are working together for the purpose of making money by lowering our stock price. Their motives and methods are wrong and we will fight these false attacks on all fronts.
All of our resources are focused on ensuring our customer understands the truth, our products are 100% safe and our testing is thorough. Also, we are focused on maintaining the customers’ trust and addressing any concerns over our long purchase cycle.
We stand by every single plank of wood and laminate we sell all around the country and will continue to deliver the best product at the best price to our growing base of valued customers.”
Correction: The original article reported seven lawsuits against Lumber Liquidators are pending. That was incorrect. Five lawsuits are currently pending against Lumber Liquidators. We regret the error.
