60 Minutes Investigation shows Lumber Liquidators Laminate Flooring Contains Toxic Amounts of Formaldehyde; Democrats Want Federal Probe

People in California complain their flooring is making them sick. The complaints have one source in common, Lumber Liquidators laminate flooring from China with toxic levels of Formaldehyde, up to 20 times the maximum amount in one test. US manufactured flooring does not have the same defects.

Health and Safety Violations

Please consider Lumber Liquidators Linked to Health and Safety Violations.

The following is a script from "Lumber Liquidators" which aired on March 1, 2015. Anderson Cooper is the correspondent. Katherine Davis and Sam Hornblower, producers.

Lumber Liquidators is the largest and fastest-growing retailer of hardwood flooring in North America, with over 360 stores in 46 states and revenues of more than a billion dollars a year. But hardwood isn't the only product they sell. More than 100 million square feet of the company's cheaper laminate flooring is installed in American homes every year. Lumber Liquidators is a U.S. company, but much of its laminate flooring is made in China, and as we discovered during our investigation, may fail to meet health and safety standards, because it contains high levels of formaldehyde, a known cancer causing chemical.

Lumber Liquidators insists its Chinese-made laminate flooring is safe, but it doesn't appear that way based on what we learned from our own reporting and from the work of people like Denny Larson [executive director of a nonprofit group called Global Community who teamed up with Richard Drury, a prominent environmental attorney, to test Lumber Liquidators Chinese-made laminate flooring.]

Anderson Cooper: You want the company to remove all the flooring?

Denny Larson: Every single board. At their cost and replace it with clean flooring.

Anderson Cooper: How much is that gonna cost?

Denny Larson: You know what? I don't care. Because they're guilty of selling people product that could make them sick. These worried California homeowners, who didn't want to be identified, aren't waiting for Lumber Liquidators. They are ripping up their floors now. But many can't afford to replace the flooring on their own.

Anderson Cooper: Do you have any idea how much of this wood is in people's homes right now?

Richard Drury: We believe there are probably tens of thousands of households in California that have installed Lumber Liquidators Chinese laminates that may exceed formaldehyde standards.

Drury and Larson bought more than 150 boxes of laminate flooring at stores around California and sent them to three certified labs for a series of tests. The results? While laminate flooring from Home Depot and Lowes had acceptable levels of formaldehyde, as did Lumber Liquidators American-made laminates, every single sample of Chinese-made laminate flooring from Lumber Liquidators failed to meet California formaldehyde emissions standards. Many by a large margin.

Richard Drury: The average level in Lumber Liquidators products that we found was over six to seven times above the state standard for formaldehyde. And we found some that were close to 20 times above the level that's allowed to be sold. ... It's a startling amount. It was so high, in fact, that one of our test labs thought their machine was broken. ...It hit the upper limit on the radar gun. And they thought it was broken.

Dr. Philip Landrigan: It's not a safe level, it's a level that the US EPA calls polluted indoor conditions. ... I would say long-term exposure at that level would be risky because it would increase the risk for chronic respiratory irritation, change in a person's lung function, increased risk of asthma. It's not going to produce symptoms in everyone but children will be the people most likely to show symptoms at that sort of level.

Denny Larson: You're in a chamber so you're living with it. You're sleeping in there. And you're constantly exposed. That's the threat. The constant exposure to a potent carcinogen over a long period of time.

Because formaldehyde can cause myeloid leukemia and nasopharyngeal cancer at high levels and respiratory issues as well as eye, nose and throat irritation at even low levels, California has strict standards for how much of the chemical the core boards in laminate flooring can emit.

Every box of laminate flooring Lumber Liquidators sells carries this label - stating its CARB Phase 2 Compliant - CARB is an acronym for the California Air Resources Board, which sets strict standards for formaldehyde emissions in wood flooring. Congress adopted California's limits when it passed the Formaldehyde Standards Act in 2010. That law is scheduled to take effect nationwide this year.

Drury and Larson only had wood tested that was being sold in California. But we wondered if the Chinese-made laminate flooring that Lumber Liquidators is selling nationwide also has high levels of formaldehyde. So we went to stores in Virginia, Florida, Texas, Illinois and New York, and bought 31 boxes of it.

We sent the samples for testing at two certified labs. It turns out of the 31 samples of Chinese-made laminate flooring, only one was compliant with formaldehyde emissions standards. Some were more than 13x over the California limit. Both labs told us they had never seen formaldehyde levels that high.

...

Posing as buyers, and using hidden cameras, the investigators visited three different mills that manufacture laminates for Lumber Liquidators.

Employees at the mills openly admitted that they use core boards with higher levels of formaldehyde to make Lumber Liquidators laminates, saving the company 10-15 percent on the price. At all three mills they also admitted falsely labeling the company's laminate flooring as CARB 2, meaning it meets California formaldehyde emissions standards, and the new U.S. federal law.

Manager [at Chinese factory]: This is a best-seller for Lumber Liquidators.

Investigator: Is this CARB 2?

Manager: No, no, no... I have to be honest with you. It's not CARB 2.

Investigator: Can I get CARB 2?

Manager: Yes, you can. It's just the price issue. We can make CARB 2 but it would be very expensive.

Investigator: All this stuff here, Lumber Liquidators... All their labeling is CARB 2 right? But it's not CARB 2?

Employee: Not CARB 2.

Anderson Cooper: Employees at all three mills told us the laminates they make are not CARB 2 compliant.

Senate Democrat Calls for Federal Probe

MarketWatch reports Lumber Liquidators Shares Turn Sharply Lower as Senate Democrat Calls for Federal Probe.

Sen. Bill Nelson of Florida called on the government to investigate whether Lumber Liquidators has made false marketing claims about the safety of its products. “Because this could affect millions of homeowners, it’s imperative we get some answers quickly,” Nelson said.

Lumber Liquidators has already released one statement challenging the testing used by “60 Minutes” and insisting its products are completely safe. The statement also questioned the on-camera accounts from the Chinese suppliers, saying the company didn't recognize any of the individuals interviewed.

The company insists it is under “attack” from short sellers who are colluding to drive down its stock price. It is currently being sued by environmentalists, backed by a group of Wall Street short sellers, who accuse the company of violating California’s toxic-warning statute.

Pressure has stepped up on the Environmental Protection Agency to complete and enforce the legislation that Congress passed in 2010. U.S. Sens. Amy Klobuchar, a Minnesota Democrat, and Mike Crapo, a Republican from Idaho, along with U.S. Rep. Doris Matsui, a Democrat from California, sent a letter to the EPA on Tuesday, urging swift action. The law was meant to be completed no later than Jan. 1, 2013, they wrote.

“New reports that certain laminate flooring products may still contain dangerous levels of formaldehyde should be a serious wake-up call that spurs action to protect consumers,” Klobuchar said in a statement.

EPA officials were not immediately available for comment.

Lumber Liquidators Chart



Ahead of the report, shares of Lumber Liquidators (LL) had already plunged. Someone sure knew what was in the report  in advance. It may have been publicly announced.

Front month strike $60 puts may have been available a week or so ago for something like $0.25. They are now worth over $24.00.

No, I did not buy any.

CBOE Options

Out of curiosity I checked Put Activity of LL on CBOE. It looks like this.



Someone or some ones bought over 15,000 LL strike 60 puts. I do not know what they paid, but my guess is something like $0.25 (that guess could be way off).

Each put represents 100 shares. So 15,000 puts would be the equivalent of shorting 1,500,000 shares. Current price is $35.81. Let's call the profit roughly $24 per share.

That's a cool aggregate profit of $36 million. Not bad for a week's work.

Shorts Not to Blame

No one should blame the shorts here. In fact, everyone should thank the shorts.

They are the ones who laid out money, did tests, and conducted an investigation into the environmentally unsafe products of Lumber Liquidators.

When companies play the "blame the shorts" game, they are usually in serious trouble. 

Whether LL executives knew what was going on or not  is a separate issue. If they did, then they should be criminally prosecuted.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com