Lumber Liquidators CEO resigns 'unexpectedly'

Roger Yu | USA TODAY

Lumber Liquidators (LL), the embattled hardwood flooring retailer, said Thursday that CEO Robert Lynch "unexpectedly" resigned, following weeks of struggles stemming from safety concerns related to its products.

Shares of the company plummeted 16.5% in regular trading to $21.10.

The Toano, Va.-based company will search nationally for a replacement, it said. Company founder Thomas Sullivan will serve as acting CEO.

Lynch also stepped down from the board of directors. John Presley, its lead independent director, will be non-executive chairman of the board. The appointments are effective immediately.

Its shares have been battered — down 62% for the year — following a 60 Minutes report in March concerning allegedly high levels of formaldehyde in its laminate flooring products imported from China. Shortly after the report, the Consumer Product Safety Commission announced that it is investigating Lumber Liquidators for the use of formaldehyde in its products.

The company has also revealed that it faces criminal federal charges over imported bamboo illegally sourced from protected animal habitats. It's also facing lawsuits from activist groups.

Formaldehyde is commonly found in industrial products. But it's considered a carcinogen at high levels of exposure, and regulations limit the amount used in consumer products. The 60 Minutes report also claimed three Chinese suppliers falsely labeled their products as being compliant to the exposure limit set in California, a claim Lumber Liquidators has since verified.

Meanwhile, the company suspended sales of all laminate flooring sourced from China pending completion of its internal review. The probe will be handled mostly by Freeh Group International Solutions, the investigative company founded by former FBI director Louis Freeh.

The company posted a 6% gain in first-quarter sales to $260 million but swung to a loss of $7.8 million from a profit of $13.7 million a year ago.

In providing a product update earlier this month, Lumber Liquidators said tests conducted by "independent, accredited laboratories" found that "over 97% of customers' homes were within the protective guidelines established by the World Health Organization for formaldehyde levels in indoor air." To conduct the test, the company sent about 26,000 testing kits to nearly 15,000 customers. About 3,400 kits that were sent back were tested.

The company's troubles had been brewing long before the 60 Minutes report. In its annual report filed in February, the company said federal law enforcement officials raided its offices in the fall of 2013 to search for documentation related to its import practices.

The Justice Department is seeking criminal charges for the company's alleged violation of the Lacey Act, which prohibits trading goods derived from wildlife, fish and plants that were illegally transported or sold.

Lumber Liquidators also said previously CFO Dan Terrell will leave the company in June.