The U.S. Department of Justice is pursuing criminal charges against Lumber Liquidators Holdings in connection to an ongoing investigation into some of its imports from China. One of the nation’s largest vendors of hardwood flooring has been under intense scrutiny since a “60 Minutes” report last month alleged that some of the company’s Chinese-made laminate flooring contains unsafe levels of cancer-causing formaldehyde.
“In recent communications, the DOJ indicated that it is seeking criminal charges under the Lacey Act,” the retail company said in its first-quarter earnings statement filed after markets closed Tuesday. The Lacey Act prohibits the import animal and plant products that violate regulations. The company also said it’s facing more than 100 class-action lawsuits from customers who want to replace the laminate flooring they had installed.
Lumber Liquidators’ (NYSE:LL) stock plunged over 15 percent Wednesday morning, to $33.42, after the Toano, Virginia, company reported a $7.8 million loss in the three months ended March, down from a $13.7 million gain in the same period last year.
The share price was trading at nearly $70 before the “60 Minutes” investigation broadcast, on March 1. Tests conducted by the CBS news program found the company had imported boxes of laminate flooring from China that had 13 times the level of the carcinogen deemed safe by California’s air safety standards. At a certain level, composite wood products can emit unsafe levels of formaldehyde into the air.
Lumber Liquidators CEO Rob Lynch admitted in March that tests by California regulators conducted before the news report found high levels of formaldehyde. But the company is challenging the test methodology and insists its products are safe. However, the company is offering home air-quality tests to customers who have bought its Chinese-imported wood laminate and says it would replace flooring at no cost in cases where high levels of the carcinogen are detected.
The “60 Minutes” report underscored the problem that can happen with sourcing from China. The boxes of laminate flooring, it found, had been labeled at the factory as compliant with California’s air quality regulations in order to get them through U.S. Customs.
In 2013, an Environmental Protection Agency report accused Lumber Liquidators of poor sourcing practices that resulted in the destruction of critically endangered tiger habitats in Asia.