WILMINGTON, Del. (CN) - The top two officers of Lumber Liquidators sold $19 million of stock at inflated prices before the company's problems with formaldehyde-tainted Chinese flooring became public, a shareholder claims in a derivative lawsuit.
More than a dozen class actions have been filed this month accusing Lumber Liquidators of selling Chinese flooring that emits unsafe levels of formaldehyde, and misrepresenting it as compliant with state and federal regulations.
Courthouse News reported on 11 of those class actions Monday. By Monday evening, six more lawsuits had been filed against the company, at least two of them formaldehyde-related class actions.
James Costello sued nine top officers of Lumber Liquidators in Chancery Court on March 6.
He claims that Thomas Sullivan, founder and chairman of the board, "sold over $10 million worth of his privately held shares of Lumber Liquidators common stock ... while in possession of material adverse non-public information."
Costello says that CEO and president Robert M. Lynch "engaged in insider selling and reaped illicit proceeds in excess of $9 million ... while in possession of material adverse non-public information."
And he claims that John M. Presley, a member of the board, chairman of the company's Audit Committee and its "audit committee financial expert," exercised options and sold shares of common stock "to reap illicit proceeds of over $2.875 million."
The 49-page complaint lists other compensation the defendants get, including $110,000 a year to serve of the board, plus bonuses for serving on committee, more bonuses for chairing a committee, and more than $1.5 million among them in stock awards and other compensation.
He accuses all the defendants of breach of fiduciary duty and gross mismanagement, and selected defendants of unjust enrichment from insider selling.
He seeks a constructive trust on profits they made from selling their shares and exercising options, restitution, disgorgement, injunctions and costs.
He is represented by Blake Bennett with Cooch & Taylor.
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