Lumber Liquidators hit with class action alleging false, misleading statements to investors

Kyla Asbury Nov. 29, 2014, 6:00pm

ALEXANDRIA, Va. (Legal Newsline) - A Florida retirement trust filed a class action lawsuit against Lumber Liquidators Holdings Inc. for allegedly making false and misleading statements about future revenues, earnings growth and profit margins, which caused the company's stock to trade at inflated prices.

The City of Hallandale Beach Police Officers' and Firefighters' Personnel Retirement Trust claim throughout the class period, the company, along with CEO Robert M. Lynch and CFO Daniel E. Terrell,  repeatedly assured investors that its network of wood flooring suppliers was diversified and could provide Lumber Liquidators with sufficient inventory to meet customer demand, without having a negative impact on revenue, earnings or margins, according to a complaint filed Sept. 17 in the U.S. District Court for the Eastern District of Virginia.

The plaintiff claims Lumber Liquidators continually touted that its sourcing initiatives would continue to drive revenue and earnings growth and margin expansion.

"As a result of these misrepresentations, Lumber Liquidators stock traded at artificially inflated prices during the class period," the complaint states.

On July 9, it was revealed that the company announced poor financial results, which it attributed to lower than planned inventory levels.

The plaintiff claims contrary to prior assurances, Lumber Liquidators' supplier network did not include enough lumber mills to provide sufficient inventory.

"Lumber Liquidators also revealed that heavy discounting during the class period caused margins to contract in the second quarter compared to the same quarter in 2013," the complaint states. "On this news, the company's stock price plummeted $15.17, or 21.5%, wiping out over $400 million of market value."

The decline in the price of Lumber Liquidators stock caused by these disclosures of the truth about the company damaged the plaintiff and the class, according to the suit.

The plaintiff claims during the class period, the defendants made materially false and misleading statements and omissions and engaged in a scheme to deceive the market.

"This artificially inflated the price of Lumber Liquidators common stock and operated as a fraud or deceit on the class," the complaint states. "Later, when defendants' prior misrepresentations and fraudulent conduct were disclosed to the market on July 9...the price of Lumber Liquidators common stock fell precipitously, as the prior artificial inflation came out of the price over time."

As a result of their purchases of Lumber Liquidators common stock during the class period, the plaintiff and other members of the class suffered economic loss and damages, under the federal securities laws, according to the suit.

The plaintiff is seeking class certification and compensatory damages. It is being represented by Susan R. Podolsky of the Law Offices of Susan R. Podolsky; and Gerald H. Silk and Avi Josefson of Bernstein Litowitz Berger & Grossmann LLP.

The case is assigned to District Judge Anthony J. Trenga.

U.S. District Court for the Eastern District of Virginia case number: 1:14-cv-01227

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