Lumber Liquidators’ consumers and investors seek answers on formaldehyde in flooring

March 5, 2015

Homeowners, contractors, and developers nationwide are looking for answers from Lumber Liquidators following a 60 Minutes report on March 1, 2015, which revealed that the company’s Chinese-made wood laminate flooring contains toxic and potentially illegal amounts of formaldehyde, a known carcinogen.

According to the report, Lumber Liquidators’ Chinese suppliers are manufacturing laminate flooring with up to 20 times the legal amount of formaldehyde and subsequently labeling and marketing it for resale in the U.S. as CARB-compliant, or in line with the composite wood emissions standards set forth by the California Air Resources Board. At present, California is the only state to regulate such emissions, though proposed regulations established by the Environmental Protection Agency pursuant to the Formaldehyde Emissions Standards for Composite Wood Act are slated to take effect nationwide in 2015.

Lawmakers call for a federal investigation into the health risks of imported laminate flooring

Consumers who have purchased the Chinese-made flooring have called on lawmakers for help. Yahoo News reports that Democratic Senator Bill Nelson called on federal regulators on Wednesday, March 4 to investigate potential health risks associated with laminate flooring made outside of the U.S.

Still other purchasers of the allegedly toxic flooring are seeking answers elsewhere. According to CBS News, Denny Larson of the Global Community Monitor, an environmental advocacy group, has received over a thousand inquiries from concerned consumers who are wondering how best to avoid illness from formaldehyde exposure. In addition to its known role in the development of cancers such as leukemia, exposure to excessive or illegal levels of formaldehyde can cause a host of respiratory difficulties, including coughing, wheezing, and difficulty breathing.

CBS reports that Larson is advising those concerned about toxic flooring to seal off rooms in the homes and open windows to increase ventilation. Despite this, however, CBS hazards that there are “no easy answers for consumers” because home kits to test formaldehyde levels in flooring are expensive, as the services of environmental engineers are likely to be.

Lumber Liquidators’ denies wrongdoing in public statement

Lumber Liquidators released a statement with an SEC filing on March 2, 2015, the day after the 60 Minutes report aired. In the statement, the company alleges that “60 Minutes used an improper test method in its reporting that is not included in CARB’s regulations and does not measure a product according to how it is actually used by consumers.” The company further states that although its chairman specifically addressed the differences between supposedly validated testing methods and the ones implicated in the 60 Minutes testing, 60 Minutes excluded this discussion from the final broadcast. In the statement, Lumber Liquidators assures consumers that the company’s “laminate wood floors are completely safe to use as intended.”

According to Lumber Liquidators, recent “attacks” on the company concerning its laminate flooring “are driven by a small group of short-selling investors who are working together for the purpose of making money by lowering our stock price.”

Short sellers linked to Lumber Liquidators’ plunging stock price

A short sale of stock occurs when a trader borrows stocks from an owner to sell them to another party, typically when the trader has reason to believe the stock price will decline. If the stock price does decline after a trader has sold the borrowed shares, the trader may either purchase the shares back at a lower price, thereby profiting, or may wait to see if the stock prices continues to decline, potentially increasing profit margins from the short sale.

As reported by Yahoo Finance, it was a 25-year-old independent short-seller, Xuhua Zhou, who in fact initiated the plunge in LL stock prices that occurred this week. According to Yahoo, Zhou began an independent investigation into Lumber Liquidators’ manufacturing activities in 2013 after he noticed a surge in company profits and learned that some of its products were Chinese-made.  After reviewing online complaints about LL’s Chinese-made flooring, Yahoo reports Zhou purchased LL laminate flooring and paid to have it analyzed. Following the analyses, Zhou published a blog post on June 20, 2013, advocating short sale of the stock. That day, Lumber Liquidators’ stock price fell 4.5%.

Yahoo News reports that Zhou’s early efforts were noticed by another short-seller and head of Kase Capital Management, Whitney Tilson, who discovered the so-called “short opportunity” in September before ultimately pitching the story to 60 Minutes. Tilson was featured prominently in the 60 Minutes report, though according to Yahoo, he concedes that Zhou is the ‘pioneer’ of the story.

Goldman Sachs keeps a “Buy” rating on Lumber Liquidators stock

After the report aired, Lumber Liquidators’ stock plummeted 25%. Despite this, Business Insider reports that Goldman Sachs is keeping a “Buy” rating on the stock for the time being.

Lumber Liquidators will hold a call with investors on March 12 to address concerns over volatility of the stock and other fallout from the 60 Minutes report, including the filing of class action lawsuits on behalf of consumers who purchased illegally and potentially dangerous laminate flooring products.

Did you purchase Lumber Liquidators’ wood laminate flooring?

You may be eligible to participate in a class action lawsuit. Contact our consumer attorneys for more information and for a free legal consultation by calling (510) 350-9704.