Simon Chu, 68, of Chino Hills, California, and Charley Loh, 65, of Arcadia, California, were convicted of conspiracy to defraud the U.S. Consumer Product Safety Commission (CPSC) and failure to furnish information as required by the Consumer Product Safety Act (CPSA).
The defective dehumidifiers sold by Chu and Loh’s two corporations were included in multiple recalls of a larger number of defective dehumidifiers manufactured by Gree Electric Appliances Inc. of Zhuhai (Gree Zhuhai) in China. According to the recall notices, more than 450 reported fires and millions of dollars in property damage have been linked to the recalled Gree Zhuhai dehumidifiers.
Gree USA was sentenced in April to pay a $500,000 criminal fine after pleading guilty to failing to notify the CPSC about the problems with the dehumidifiers. The fine, along with provisions to pay restitution to victims, was part of a $91 million criminal resolution with Gree USA, Gree Zhuhai and another related Gree company, Hong Kong Gree Electric Appliances Sales Co. Ltd. This resolution is the first corporate criminal enforcement action ever brought under the Consumer Product Safety Act.
Requirement to Report Dangerous Defects
According to the indictment of Chu and Loh, Chu was part owner and chief administrative officer of Gree USA Inc. and another corporation in City of Industry, California, that distributed and sold to retailers for consumer purchase dehumidifiers that were made by Gree Zhuhai in China. 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 alleged 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 defects in the dehumidifiers, the indictment alleged 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.
“Companies and their employees should immediately report known dangerous consumer products to the Consumer Product Safety Commission so the products can be recalled as soon as possible,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “The Justice Department will prosecute companies and their employees when they willfully put the public in harm’s way by failing to report known dangerous products.”
“It is critical to hold corporate executives accountable for misconduct,” said U.S. Attorney Martin Estrada for the Central District of California. “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 safety of the American public is the top priority for HSI, and products like these can turn an ordinary purchase into deadly consequences.” said Special Agent in Charge Eddy Wang for Homeland Security Investigations (HSI) Los Angeles. “HSI Los Angeles will continue to work diligently to ensure our supply chain is safe from products that can harm consumers.”
The jury acquitted both defendants on one count of wire fraud. 