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U.S. Investigates Flooring Giant

Friday, February 27, 2015

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North America's largest hardwood flooring retailer may face federal criminal charges over its importing practices—and an unpleasant report on its troubles by 60 Minutes.

In its 10-K annual report filed Wednesday (Feb. 25) with the U.S. Securities and Exchange Commission, Lumber Liquidators noted that agents from Immigration and Customs Enforcement and the U.S. Fish and Wildlife Service had raided its corporate offices in Toano, VA, on Sept. 26, 2013.

LiquidatingTheForests
Liquidating the Forests

A 2013 undercover investigation by the nonprofit Environmental Investigation Agency accuses Lumber Liquidators of buying illegally harvested Russian hardwood that is funneled through China for milling and finishing. Products made from illegally logged woods violate the U.S. Lacey Act.

Federal agents served search warrants on the company demanding "information, primarily documentation, related to the importation of certain of our wood flooring products," the SEC form said.

The Lacey Act

"Since then," the company added, "we have been cooperating with the federal authorities, including the Department of Justice ('DOJ'), in their investigation."

Finally, it reported: "In recent communications, the DOJ indicated that it is contemplating seeking criminal charges under the Lacey Act."

The Lacey Act of 1900 was the first federal law to protect wildlife. It enforces civil and criminal penalties for the illegal trade of animals and plants.

LumLiqTom
Liquidating the Forests

Posing as buyers of hardwoods, EIA's film crew visited a Chinese warehouse where Lumber Liquidators-branded woods were being finished, wrapped and packed for shipping.

In 2008, the Lacey Act was amended to expand protection to a broader range of plants and plant products, including products made from illegally logged woods.

Touting Value, Selection

Lumber Liquidators was founded in 1994 when Tom Sullivan, now chairman, "began selling surplus building materials at heavily discounted prices," the company says on its website.

In 1996, the company says it "identified an opportunity to sell hardwood flooring at 'liquidator' prices" and "began working directly with mills" to provide "a broad assortment of high-quality products at a lower cost than its competitors."

The company advertises "an extensive assortment of exotic and domestic hardwood species, engineered hardwoods, laminates, bamboo and cork" obtained "directly from the mill" but does not say where the wood is sourced.

LumberLiquidators
LumberLiquidators
Lumber Liquidators

Tom Sullivan founded Lumber Liquidators in 1994. In an SEC filing this week, the company says it may face federal criminal charges for its importing practices.

The company sells flooring through more than 350 stores.

'Liquidating the Forests'

In 2013, a Washington D.C. environmental nonprofit, the Environmental Investigation Agency, issued a report alleging  illegal trafficking on several continents to support the global hardwood flooring trade.

Liquidating the Forests specifically accuses Lumber Liquidators of using a Chinese supplier to illegally purchase "millions of square feet of illegal wood originating in the Russian Far East, which provides the habitat for the last 450 Siberian tigers in the world."

Demand for the flooring comes from the United States, the European Union, Japan and China, the investigative group said in its 64-page report and accompanying video. Sawmill owners told EIA that 80 percent of wood logged from Eastern Russia's old-growth forests is illegal.

The report and documentary include extensive video footage of timber harvesting in Russia, manufacturing and finishing operations in China of what appear to be Lumber Liquidators-branded products, and interviews with principals in the supply chain speaking openly of corruption and violence in the trade.

Liquidating the Forests, a 2013 documentary by an environmental investigative nonprofit, accuses Lumber Liquidators of buying millions of square feet of illegal wood from the Russian Far East. The company's importing practices are now the target of a U.S. Justice Department investigation.

The timber trade is supported by organized crime in Russia, EIA contends. Senior officials of a major Russian timber company that supplies Lumber Liquidators were convicted in December of illegal logging, EIA said.

60 Minutes

Adding to the company's woes, CEO Robert Lynch said in a conference call Wednesday (Feb. 25) that the CBS news program 60 Minutes "may feature the company in an 'unfavorable' segment this weekend," the Associated Press reported.

CBS does not comment on its upcoming reports, the network has said.

Lynch said on the call that the report was related to a 2014 lawsuit against the company that alleges failure to disclose formaldehyde emissions from its products, the AP said.

   

Tagged categories: Business operations; Exotic wood; Flooring system; Floors; Government; Hardwood; Laws and litigation

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