In a landmark trial concluding on November 16, two prominent California-based corporate executives, Simon Chu and Charley Loh, faced charges of conspiracy and failure to report information related to defective residential dehumidifiers. Significantly, this case is the first-ever criminal prosecution for failure to report under the Consumer Product Safety Act (CPSA).
Chu and Loh were convicted of conspiracy to defraud the U.S. Consumer Product Safety Commission (CPSC) and failure to furnish information as required by the CPSA. These charges stemmed from non-disclosure of defects in residential dehumidifiers manufactured in China. Such defects were part of a series of recalls affecting a broader range of products produced by Gree Electric Appliances Inc. of Zhuhai (Gree Zhuhai). The recalls were initiated in response to over 450 reported fires and millions of dollars in property damage. According to the government, Chu, serving as part owner and chief administrative officer of Gree USA Inc., and Loh, as part owner and chief executive officer of the same corporation, were allegedly aware of the defects as early as September 2012 but failed to promptly report them to the CPSC, thereby violating the CPSA.
This case sets a precedent in the legal landscape. While the jury acquitted both defendants on one count of wire fraud, the convictions underscore the potential severe consequences for failure to comply with the CPSA.
Gree USA faced its own legal repercussions in April when it was sentenced to pay a $500,000 criminal fine after pleading guilty to the failure to notify the CPSC about the issues with the dehumidifiers. The fine, coupled with provisions for victim restitution, formed part of a groundbreaking $91 million criminal resolution involving Gree USA, Gree Zhuhai, and another related Gree entity, Hong Kong Gree Electric Appliances Sales Co. Ltd. Notably, this resolution marked the first corporate criminal enforcement action under the CPSA.
U.S. Attorney Martin Estrada emphasized the government’s intention to hold corporate executives accountable, stating, “The importation and sale of defective consumer products can lead to injury and death, and this verdict sends a clear message that putting profits over safety will not be tolerated.”
The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with federal investigations. If you need assistance with such a matter, please contact us today.