Lumber Liquidators Holdings (LL) - Get Report agreed to pay $33 million to settle cases with the Securities and Exchange Commission and federal prosecutors for making "fraudulent misstatements to investors" regarding the company's sale of its laminate flooring from China to its U.S. customers, officials said Tuesday.
The SEC said that in early 2015, the Toano, Virginia-based company made public statements in response to a "60 Minutes" episode that showed undercover video of Lumber Liquidators' suppliers stating that they provided the company with products that did not comply with regulatory requirements. In its response, the SEC said, Lumber Liquidators fraudulently informed investors that third-party test results of its flooring products proved compliant with formaldehyde emissions standards and that it had discontinued sourcing materials from suppliers that were unable to meet these standards.
Lumber Liquidators knew that its largest Chinese supplier had failed third-party formaldehyde emissions testing and was unable to produce documentation showing regulatory compliance. The SEC said that despite having evidence confirming that the individuals in the "60 Minutes" undercover video were factory employees of its suppliers, Lumber Liquidators falsely stated that its suppliers weren't depicted in the video.
Lumber Liquidators also entered into a deferred prosecution agreement with the Justice Department's Fraud Section and the U.S. Attorney's Office for the Eastern District of Virginia.
G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia, said in a statement that "this resolution holds Lumber Liquidators accountable for misleading the investing public."
"It also recognizes that the company has cooperated with the government's investigation, completely replaced its senior executive team, and installed experienced executives who have displayed a commitment to building an ethical corporate culture," Terwilliger said.
"We have cooperated with this investigation and are pleased to have reached a resolution with the U.S. Attorney's Office, DOJ, and SEC," Lumber Liquidators CEO Dennis Knowles said in a statement.
In the lead-up to these agreements, Lumber Liquidators said it "incorporated extensive remedial measures" that include the implementation and enforcement of a comprehensive compliance, ethics, and reporting program, as well as training and guidance on relevant policies and procedures.
Shares were down 2.19% to $11.19.