Two Southern California executives were found guilty Thursday for their roles in a scheme involving sales of defective and fire-prone Chinese-made dehumidifiers.
Simon Chu, 68, of Chino Hills, and Charley Loh, 65, of Arcadia, were both convicted at trial of conspiracy and failure to furnish information to the U.S. Consumer Product Safety Commission. The criminal jury in Los Angeles federal court acquitted each defendant of wire fraud, according to the U.S. Department of Justice.
Chu and Loh were, respectively, chief administrative officer and the chief executive officer of Gree USA Inc., an Industry-based subsidiary of a Chinese appliance company that imported, distributed and sold to retailers dehumidifiers for consumer purchase.
Federal consumer product safety rules require manufacturers, importers, and distributors of consumer products to report immediately to the agency information that reasonably supports the conclusion that a product contains a defect that could create a substantial hazard or creates an unreasonable risk of serious injury or death.
The jury found that as early as September 2012, Chu and Loh received multiple reports that their dehumidifiers were defective, dangerous and could catch fire. The executives also knew that they were required to immediately report the product safety information to the CPSC, according to the DOJ.
Despite their knowledge of consumer complaints of dehumidifier fires and test results showing problems with the dehumidifiers, 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, according to the DOJ.
The DOJ argued that as part of the scheme, Chu and Loh deliberately withheld information about the defective and dangerous Chinese dehumidifiers from the retail companies that bought the devices; the insurance companies that paid for damage caused by fires resulting from the dehumidifiers; and the CPSC.
Loh and Chu 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, according to federal prosecutors.
U.S. District Judge Dale S. Fischer set sentencing for March 11.
Earlier this year, Gree USA was ordered to pay a $500,000 fine after pleading guilty to failing to notify the CPSC that millions of dehumidifiers sold to U.S. consumers were defective and could catch fire.
Gree USA pleaded guilty in January to a felony violation of the Consumer Product Safety Act. The fine, along with provisions to pay restitution to victims, was part of a $91 million resolution with three related Gree companies that represented the first corporate criminal enforcement action ever brought under the CPSA, according to the DOJ.
Court filings show the Gree companies knew their dehumidifiers were defective, failed to meet safety standards and could catch fire. But the companies only reported and recalled the dehumidifiers after consumer complaints of fires.