A federal grand jury returned an indictment on Thursday, March 28, 2019, against two corporate executives for their roles in a scheme involving defective and dangerous consumer products.
The executives were charged with conspiracy to commit wire fraud, failure to furnish information under the Consumer Product Safety Act (CPSA), and to defraud the U.S. Consumer Product Safety Commission (CPSC). In addition to conspiracy, the indictment also alleged one count of wire fraud and one count of failure to furnish information under the CPSA.
According to the indictment, a part owner and the chief administrative officer imported, distributed, and sold to retailers for consumer purchase dehumidifiers that were made in China. The Consumer Product Safety Act requires manufacturers, importers, and distributors of consumer products to report “immediately” to the CPSC information that reasonably supports the conclusion that a product contains a defect that could create a substantial product hazard or creates an unreasonable risk of serious injury or death. This duty also applies to the individual directors, officers, and agents of those companies.
As early as September 2012, the executives at the companies received multiple reports that their imported Chinese dehumidifiers were defective, dangerous, and could catch fire. They also allegedly knew that they were required to report this product safety information to the CPSC immediately. Despite their knowledge of consumer complaints of dehumidifier fires and test results showing problems with the dehumidifiers, the executives failed to disclose their dehumidifiers’ defects and hazards for at least six months while they continued to sell their products to retailers for resale to consumers.
The indictment further alleges that as part of their scheme, the executives deliberately withheld information about the defective and dangerous imported Chinese dehumidifiers from the retail companies that bought the dehumidifiers; the insurance companies that paid for damage caused by the fires resulting from the dehumidifiers; and the CPSC. They continued to sell the Chinese dehumidifiers to retailers with false certifications that the products met safety standards; caused a company employee to solicit materials that would falsely portray to an insurance company that the dehumidifiers were safe and not defective; and sent an untimely report to the CPSC that falsely stated that the dehumidifiers were not defective or hazardous.
The executives and their companies continued to sell the defective and dangerous dehumidifiers through April 2013, and sought to avoid, reduce, and delay the costs of recalling the products. If convicted, they face a term of up to five years in prison for each of the conspiracy and the failure to furnish information counts. They both face up to 20 years’ imprisonment for the wire fraud charge. If convicted, the defendants are also subject to forfeiture and a fine of $250,000 or twice the gross gain or loss for each count.
In September 2013, the CPSC announced a recall of 2.2 million dehumidifiers, including the imported Chinese dehumidifiers sold by the companies between September 2012 and April 2013. The CPSC press release can be found here. For further information regarding importer compliance and obligations under the CPSC please see https://www.retailconsumerproductslaw.com or contact Cheryl Falvey.