Toano-based Lumber Liquidators stock value has fallen from about $68 per share to about $40 after a bruising report from 60 Minutes about formaldehyde levels in its Chinese laminate flooring.
CBS News aired a 13-minute report Sunday night, in which it says it bought 31 boxes of laminate flooring at stores across the nation and sent them for testing. Results showed all but one of the boxes failed to meet acceptable levels of formaldehyde as specified by California’s regulations establishing limits on the substance in flooring products.
Those regulations are set to be adopted nationwide later this year, according to the report.
It also featured interviews with the California-based executive director of a nonprofit called Global Community Monitor and an environmental attorney who said they sent more than 150 boxes of laminate flooring from Home Depot, Lowe’s and Lumber Liquidators to three labs for testing.
While the Home Depot, Lowe’s and American-made laminates all had acceptable levels of formaldehyde, all of the Chinese-made products failed, according to the report.
The company’s stock was hovering around $68 per share prior to Feb. 25, when Company President and CEO Robert Lynch said in a conference call with investors the 60 Minutes report was going to cast the company in a negative light.
The stock dropped to $50.63 per share Feb. 26, the day after the call. By Friday, it was $51.86 per share at the close of trading. When trading resumed Monday — one day after the 60 Minutes episode aired — the stock dropped to $38.83 per share.
At the close of business Tuesday, the stock was $40.78 per share. It peaked at $119.44 per share in November 2013.
In a statement issued Monday, the company said its products are “completely safe to use as intended” and the method of testing used by 60 Minutes was “improper.”
“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,” the statement says. “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.”
The company attributed the “attacks” against it to short-selling investors trying to make money by lowering the company’s stock price. To short sell, a stock trader borrows shares of a stock and sells them ahead of expected bad news from the company behind the stocks. Once that bad news has caused the stock value to drop, the trader buys the stock back at the lower price and gives back the borrowed stock, yielding a profit.
“Their motives and methods are wrong and we will fight these false attacks on all fronts,” the statement said of the alleged short sellers.
The formaldehyde level allegations against the company are not new.
In June 2013, the investment blog Seeking Alpha published an article claiming that the company’s Mayflower brand of hardwood flooring contained elevated levels of formaldehyde. An ongoing class-action lawsuit filed against the company in November 2013 claims “two accredited independent laboratories found that formaldehyde emissions from [a Lumber Liquidators product] were over 3.5x the maximum legal limit even though the product was labeled as being [compliant with law].”
The company is also a defendant in lawsuits from the Global Community Monitor and from a trust fund for retired police officers and firefighters from a small city near Miami that alleges actions by the company have caused the fund to lose money. Two other similar class-action lawsuits were filed against the company, but they are no longer active.
The report aired the same week the company filed a statement with the U.S. Securities and Exchange Commission noting that recent communication from the U.S. Department of Justice indicate it is considering criminal charges against the company for violations of a federal law known as the Lacey Act.
Federal agents searched the company’s Toano headquarters and a Henrico County storefront in September 2013 due to alleged violations of the Lacey Act. The act prohibits the trade of wildlife, fish or plants that have been transported or taken illegally. A federal search order found in the parking lot of a Henrico County Target suggest the company may have imported wood products from the habitat of the endangered Siberian Tiger.
Related Coverage:
- Competing Lawsuits Seek Compensation for Lumber Liquidators’ Shareholders
- Greenpeace Stages Protest, Blocks Parking Lot at Lumber Liquidators (w/ Video)
- Greenpeace: Lumber Liquidators Could Be Buying Illegal Wood from Brazil
- Customer Lawsuit Against Lumber Liquidators Dismissed
- One of Three Lawsuits Against Lumber Liquidators Dropped
- Lumber Liquidators Served with Third Class-Action Lawsuit
- Toano’s Lumber Liquidators Announces Expansion Plans
- Customers File Class-Action Lawsuit Against Lumber Liquidators
- Class Action Lawsuit Against Lumber Liquidators Seeks Damages for Shareholders
- Expert: Illegal Loggers Target Siberian Tiger Habitat for Proximity to Manufacturers
- Federal Agents Search Lumber Liquidators Headquarters in Toano
