Business

Lumber Liquidators sold illegal flooring, ‘60 Minutes’ says

Lumber Liquidators Holdings Inc. sold flooring containing levels of formaldehyde higher than California health and safety standards, according to the television news program “60 Minutes.”

The flooring comes from mills in China, the CBS show said on Sunday. The investigation used undercover reporters and hidden cameras to show that managers at three factories admitted to using false labeling that made it look like flooring produced for Lumber Liquidators met regulations when it didn’t, the program said.

“60 Minutes” said it tested flooring from China that was being sold in several states outside of California, including Virginia, Florida, Texas and New York. Of the 31 products tested, only one would have been legal in California, the show found.

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The stock slumped as much as 27 percent to $37.75 in early trading in New York following the report. The shares had already dropped 26 percent on Wednesday after Lumber Liquidators Chief Executive Officer Robert Lynch disclosed that “60 Minutes” was doing a story and that he expected the report would put the company in an unfavorable light.

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In a response to the allegations, Lumber Liquidators said its products have been tested and are safe.

“As recently as late 2014, testing by independent third parties confirmed that 100 percent of the randomly selected cores used in the laminates from the three factories that ‘60 Minutes’ investigated came back as fully safe and compliant with California standards,” the Toano, Virginia-based company said in an e-mailed statement. “We stand by every single plank of wood and laminate we sell all around the country.”

None of Lumber Liquidators’ Finished Goods or Fiberboard Core products contains formaldehyde levels in excess of the California Fiberboard Standard, according to the health and safety section of its corporate website.

“Our goal is to sell a good product at a good price,” Tom Sullivan, the company’s chairman and founder, said during the show. “And we don’t get the price by skimping on anything. We get the price by low overhead, huge volume and being very efficient at what we do. And we’re never sell something unsafe.”

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The company also disclosed in a regulatory filing on Wednesday that the U.S. Department of Justice may file criminal charges relating to an inquiry that began in 2013 for a violation of import laws.

Lumber Liquidators saw slowing growth in 2014, with comparable-store sales decreasing 4.3 percent from a year earlier and net income also dropped. The company, founded in the 1990s, competes with Home Depot Inc. and Lowe’s Cos.

Whitney Tilson, an investor betting against the stock, said he has a price target for Lumber Liquidators of $0 a share. A formaldehyde problem “is likely to be equivalent to asbestos,” he said in an interview with Bloomberg News on Saturday. Tilson was interviewed by “60 Minutes” about the company, on which he has held a short position that he disclosed on November 2013.

“In 16 years of professional money management, I’ve seen hundreds of companies do all sorts of bad things to get their stock prices up,” Tilson said during the broadcast. “But this has got to be the worst.”

Watch the “60 Minutes” report below: