Two Corporate Executives Indicted in First-Ever Criminal Prosecution for Failure to Report under Consumer Product Safety Act
Charges Relate to Defective Residential Dehumidifiers Made in China
LOS ANGELES – A federal grand jury returned an indictment yesterday against two corporate executives for their roles in a scheme involving defective and dangerous consumer products, the Department of Justice announced.
Simon Chu, 63, of Chino Hills, California, and Charley Loh, 60, of Arcadia, California, were charged with a multiple-object conspiracy to commit wire fraud, to fail to furnish information under the Consumer Product Safety Act (CPSA), and to defraud the U.S. Consumer Product Safety Commission (CPSC). In addition to the conspiracy charge, the indictment also charges both defendants with one count of wire fraud and one count of failure to furnish information under the CPSA.
According to the indictment, Simon Chu was part owner and chief administrative officer of two corporations in City of Industry, California, that imported, distributed, and sold to retailers for consumer purchase dehumidifiers that were made in China. The indictment further states that Loh was part owner and chief executive officer of the same two corporations.
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. The indictment alleges that as early as September 2012, Chu, Loh, and their companies received multiple reports that their 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 indictment alleges that Chu and Loh 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 importation, distribution, and sale of defective consumer products have real-world consequences, including serious injury or death,” said Nicola T. Hanna, U.S. Attorney for the Central District of California. “This indictment sends a clear message: If you plan to profit from selling defective products, you should also plan to face justice.”
“When corporate executives delay reporting defective consumer products to the CPSC, it puts consumers at needless risk for injury or even death,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “This prosecution reflects the Department of Justice’s commitment to enforcing product safety laws that protect consumers from product hazards. We will seek to hold accountable corporate executives who value profits over the safety of consumers by failing to immediately report their dangerous products.”
The indictment further alleges that as part of their scheme, Chu and Loh deliberately withheld information about the defective and dangerous 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. Loh and Chu allegedly 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.
“Inferior goods represent a serious threat to the integrity of the consumer product supply chain that the public needs to rely on with confidence,” said Joseph Macias, Special Agent in Charge for Homeland Security Investigations (HSI) Los Angeles. “Dangerous products like these pose a serious threat to consumers who mistakenly assume the products are safe and reliable. HSI will continue to work with our law enforcement partners to aggressively target and investigate those who would do harm to the public safety of our citizens.”
According to the indictment, Chu, Loh, 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, Loh and Chu 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 Chinese dehumidifiers allegedly sold by Loh’s and Chu’s companies between September 2012 and April 2013.
An indictment merely alleges that crimes have been committed, and each defendant is presumed innocent until proven guilty beyond a reasonable doubt.
This case is being prosecuted by Senior Litigation Counsel Allan Gordus and Trial Attorney Natalie Sanders of the U.S. Department of Justice’s Consumer Protection Branch and Assistant United States Attorneys Joseph Johns and Dennis Mitchell of the Central District of California, with the assistance of Patricia Vieira of the CPSC Office of General Counsel. The case was investigated by U.S. Homeland Security Investigations in the Department of Homeland Security.
Additional information about the Consumer Protection Branch and its enforcement efforts may be found at http://www.justice.gov/civil/consumer-protection-branch. For more information about the U.S. Attorney’s Office for the Central District of California, visit its website at https://www.justice.gov/usao-cdca.