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Lumber Liquidators Securities Class Action Lawsuit

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What is the problem?

Lumber Liquidators’ stock price has been a roller coaster since 2011, when it bottomed out at about $13 a share. Two years later, stock prices skyrocketed to an unbelievable $119 a share and its profit margins doubled — almost unprecedented for a commodities business.

In the last two years, a number of scandals have sent stock prices plummeting and sparked shareholder class actions, including:

  • Failure to report that Chinese-made laminate wood floors contained extremely high levels of the toxic carcinogen formaldehyde, and were mislabeled as meeting regulations limiting formaldehyde emissions when in fact they did not.
  • Violations of the Lacey Act, which bans importation and sales of illegally logged wood from Russian forests home to the endangered Siberian tiger.
  • Possible criminal felony or misdemeanor charges from the Justice Department related to violations of import laws.

On March 1, 2015, CBS News aired a “60 Minutes” segment to report that independent tests on dozens of Chinese-made laminate products from Lumber Liquidators failed to meet formaldehyde emissions standards. Their investigation also found that mills in China admitted mislabeling the products as compliant. The stock price fell 40% — from nearly $70 to under $40 per share.

Formaldehyde in Chinese Laminate Flooring Sold at Lumber Liquidators

This is not the first time Lumber Liquidators has been hit with a securities class action for selling toxic products.

In 2013, stock prices fell after Seeking Alpha published an exposé on Chinese-made laminate floors that did not meet formaldehyde emissions limits in California:

“The tested product, Mayflower 5/16” x 5” Bund Birch Engineered, emits a staggering three and half times over the government mandated maximum emission level. The product is clearly not CARB [California Air Resources Board] compliant yet Lumber Liquidators tagged CARB compliance on the box.”

The securities class action (Kiken v. Lumber Liquidators Holdings, Inc., et al.) was filed in federal court in Virginia on November 26, 2013. Less than two weeks later, the stock price had fallen 25% to less than $90 a share.

Justice Department Investigates Illegally Logged Wood

In February 2015, Lumber Liquidators disclosed that the Justice Department was considering filing criminal felony or misdemeanor charges for importing and selling illegally harvested wood from Russia.

Lumber Liquidators has been under investigation since September 2013. According to a Wall Street Journal from September 2013, federal authorities raided Lumber Liquidators’ headquarters.

The raid occurred after the Environmental Investigation Agency (EIA) published a report after a 3-year undercover investigation. The EIA found that Lumber Liquidators was the biggest customer of a Chinese wood flooring company called Xingjia.

Xingjia allegedly operated sawmills and factories that used wood illegally logged in Russia’s far east, and concealed their actions with bribery and falsified documents.

 

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