Lumber Liquidators 2015 Annual Report Download - page 30

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Item 3. Legal Proceedings.
Government Investigations
Lacey Act Related Matters
On September 26, 2013, sealed search warrants were executed at our corporate offices in Toano and
Richmond, Virginia by the Department of Homeland Security’s Immigration and Customs Enforcement and
the U.S. Fish and Wildlife Service. The search warrants requested information, primarily documentation,
related to the importation of certain of our wood flooring products in accordance with the Lacey Act. Since
then, we have cooperated with the federal authorities, including the Department of Justice (‘‘DOJ’’), in their
investigation.
On October 7, 2015, Lumber Liquidators, Inc. (‘‘LLI’’) reached a settlement with the DOJ in connection
with this investigation. Under the terms of a Plea Agreement with the DOJ (the ‘‘Plea Agreement’’) executed
on October 7, 2015, LLI agreed to plead guilty to one felony count for entry of goods by means of false
statements and four misdemeanor due care counts under the Lacey Act. These violations do not require LLI to
have acted with a deliberate or willful intent to violate the law, and LLI did not stipulate that it acted with
such deliberate or willful intent. As part of the settlement, LLI agreed to pay a combined total of
$10.0 million in fines, community service payments and forfeited proceeds. The payments include a
$7.8 million fine, community service contributions of $0.9 million and $0.3 million to the National Fish
and Wildlife Foundation and the Rhinoceros and Tiger Conservation fund, respectively, and a $1.0 million
forfeiture payment. We had previously recorded this amount in SG&A expenses in the first quarter of 2015.
At December 31, 2015, $6.2 million was included in current liabilities and $3.8 million was included in other
long-term liabilities on the accompanying consolidated balance sheet. We paid $6.2 million of the settlement
amount in the first quarter of 2016, and we expect to pay $2.0 million in the first quarter of 2017 and
$1.8 million in the first quarter of 2018.
LLI also agreed in the Plea Agreement to implement an environmental compliance plan (the
‘‘Compliance Plan’’) for a probation period of five years. If LLI fails to implement the Compliance Plan
within three months of sentencing, the government may require us to cease the importation of hardwood
flooring from China until the DOJ determines that the Compliance Plan has been satisfactorily implemented.
During the first four years, LLI has agreed to engage an outside consulting firm to conduct audits of
compliance with the Compliance Plan and certain requirements of the Lacey Act.
We have agreed to guarantee all payments and performance due from LLI, including but not limited to
payments for fines, community service, forfeited proceeds and special assessments and the performance of
LLI’s obligations under and compliance with the Compliance Plan and related audits.
In addition, as part of its internal compliance review procedures in the second quarter of 2015, we
determined that there were Lacey Act compliance concerns related to a limited amount of our engineered
hardwood flooring. As a result, we suspended sales of approximately $4.1 million of this product pending
further investigation, and brought this matter to the attention of the DOJ. During the investigation, we
determined that there were no compliance concerns with respect to approximately $0.9 million of the
suspended engineered hardwood flooring. In connection with the Plea Agreement with the DOJ, we also
reached a settlement with the DOJ related to the remaining $3.2 million of suspended engineered hardwood
flooring. Pursuant to a Complaint for Forfeiture In Rem and a Stipulation for Settlement and Joint Motion for
Entry of Consent Order of Forfeiture (the ‘‘Consent’’), the DOJ agreed to accept a $3.2 million payment in
lieu of a civil forfeiture of this product. We had previously recorded this amount in SG&A expenses in the
second quarter of 2015. We paid this amount in October 2015 pending entry of the Consent and, pursuant to a
motion granted, are now permitted to sell the suspended engineered hardwood flooring and retain any
proceeds of the sale. The Consent was entered by the court on January 7, 2016, and final judgment was
entered on January 8, 2016.
The Plea Agreement was approved by the United States District Court for the Eastern District of Virginia
on October 22, 2015. A sentencing hearing was held on February 1, 2016 and the court entered a final
judgment on February 3, 2016. The terms of the final judgment are consistent with the Plea Agreement.
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