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Georgia flooring giant Mohawk Industries subpoenaed in federal probe

A forklift speeds by machines and workers on the production floor of a Mohawk Industries rug manufacturing plant in Calhoun, Ga., in 2006. Recently, the company has faced allegations that it inflated financial results, misleading investors. (AP Photo/Ric Feld)
A forklift speeds by machines and workers on the production floor of a Mohawk Industries rug manufacturing plant in Calhoun, Ga., in 2006. Recently, the company has faced allegations that it inflated financial results, misleading investors. (AP Photo/Ric Feld)

Federal regulators are probing allegations that Georgia-based Mohawk Industries, the world’s largest flooring manufacturer, misled investors in order to hide financial troubles and defective product made at a north Georgia plant.

The U.S. Attorney’s Office for the Northern District of Georgia and the U.S. Securities and Exchange Commission recently issued subpoenas to the company, Mohawk disclosed this week. It said it was cooperating with authorities, who were probing topics similar to those raised by a shareholder lawsuit claiming the company engaged in securities violations.

The proposed class-action suit, brought by the Public Employees’ Retirement System of Mississippi, makes searing allegations against Calhoun-based Mohawk and its chairman and chief executive officer, Jeffrey Lorberbaum. It claims Mohawk falsely booked revenue through a scheme to make deliveries on Saturdays when customers were closed and couldn’t decline product they didn’t need yet or that Mohawk knew was defective.

The suit, which refers to accounts of former employees, portrays the “Saturday scheme” as a way for the company to “conceal from investors the true reasons for the company’s ballooning inventory. When the truth was finally revealed to investors through a series of partial disclosures beginning in July 2018, the price of Mohawk common stock plunged, wiping out $7.4 billion in shareholder value.”

Mohawk said in an SEC filing Monday that it “intends to vigorously defend itself in the lawsuit” and it previously described the allegations as frivolous. It did not immediately respond Tuesday to Atlanta Journal-Constitution requests for further comment. The company’s share price fell sharply in early trading Tuesday.

A spokesman for the U.S. Attorney’s Office declined comment on its subpoenas.

Mohawk reported it generated nearly $10 billion in revenue last year. The company employed nearly 42,000 people in 2019, about half of them in the United States. It is the biggest player in a broader flooring industry that has long been a major employer and financial engine in north Georgia.

Yet years before the coronavirus pandemic sent shudders through the industry, Mohawk was faltering.

There was a boom in the overall market for luxury vinyl tile, which is made to look like hardwood or some other kinds of conventional flooring. Mohawk didn’t have strong footing, so it bought a Belgian manufacturer that made luxury vinyl tile and had a plant in north Georgia.

Mohawk trumpeted steep financial gains and brisk sales. But, according to the later lawsuit, the company was inflating results even as a huge chunk of the vinyl coming out of the company’s operations was defective. The suit claims senior executives were given reports showing the results of the roller coaster of deliveries near the end of financial quarters followed by returns the next financial period.

Competitors were gaining on Mohawk in the new segment even as the company’s more conventional flooring sales slowed, according to the suit. It accused the company of issuing false and misleading financial statements to investors from early 2017 into last year.