On November 17, 2016, Pomerantz LLP, as sole Lead Counsel for the Class in a securities lawsuit against Lumber Liquidators, Inc. (“Lumber Liquidators” or the “Company”)(NYSE: LL) and certain of its officers, received final approval from the Court for its settlement with defendants. Defendants agreed to pay $23,000,000 plus 1,000,000 shares, valued at approximately $16,000,000 at the time of the settlement.
The class action, filed in United States District Court, Eastern District of Virginia, was on behalf of a class consisting of all persons or entities who purchased or otherwise acquired Lumber Liquidators securities between February 22, 2012 and November 21, 2013, both dates inclusive (the “Class Period”), seeking to recover damages against defendants for alleged violations of the federal securities laws pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
Lumber Liquidators is a multi-channel specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories, operating as a single business segment.
The Complaint alleged that throughout the Class Period, defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, defendants made false and/or misleading statements and/or failed to disclose that: (1) certain of the Company’s products failed to comply with applicable laws and regulations governing formaldehyde emissions from composite wood products; (2) the Company imported flooring products sourced from illegally logged wood in the Russian Far East in violation of the Lacey Act; (3) as a result of the foregoing violations, the Company faces the risk of large fines, penalties, forfeitures, judgments and/or settlements in connection with government regulatory actions and/or consumer class actions; and (4) as a result of the foregoing, the Company’s statements were materially false and misleading at all relevant times.
On June 20, 2013, an article published on SeekingAlpha.com alleged that, among other things, testing of one of Lumber Liquidators’ branded wood flooring products (imported from China and sold in California) at two accredited independent laboratories found that formaldehyde emissions from the tested product were over 3.5x the maximum legal limit, even though the product was labeled as being California Air Resources Board-compliant. On this news, Lumber Liquidators shares declined, over the course of two trading sessions, by $9.40 per share or nearly 11%, to close at $76.63 per share on June 21, 2013.
On September 26, 2013, agents from the Department of Homeland Security, the U.S Fish and Wild Life Service, and the Department of Justice executed sealed search warrants at Lumber Liquidators’ corporate offices in Toano and Richmond, Virginia, related to the importation of certain wood products. On this news, Lumber Liquidators shares declined $5.83 per share, or more than 5%, to close at $107.13 per share on September 27, 2013.
On November 21, 2013, well-known hedge fund manager, Whitney Tilson, criticized the Company for importing illegally sourced timber from Russia in direct violation of U.S. laws. Mr. Tilson explained that the Company was only able to maintain its unbelievably high margins, and thus inflate its revenues, as a result of importing illegal timber. On this news, the Company’s shares fell over $16.07 per share, or over 13%, to $99.29 per share over two trading sessions.