May 28, 2024

DOJ Seeks 10-Year Prison Sentences in First Consumer Product Safety Conviction

This month, the government is asking for a pair of 10-year prison sentences for two Gree USA Inc. executives convicted of failing to report defective humidifiers. This comes after the two were found guilty of conspiracy to defraud the US Consumer Product Safety Commission (“CPSC”) and of failing to satisfy the reporting requirements of the Consumer Product Safety Act (“CPSA”).

According to federal prosecutors and the Commission’s director, the two convicted executives knowingly endangered the lives of US consumers by continuing to sell defective, Chinese-imported dehumidifiers despite knowing that the products could overheat and catch fire. The dehumidifiers at issue allegedly were “associated with” fires that killed four people. The government accuses the two executives of knowing as early as 2012 that the products were highly defective and could catch fire after overheating, and the executives were even warned that the product should be recalled. But instead of turning information over to the Commission, it is alleged the executives engaged in a cover-up to avoid a recall and protect Gree, which makes heating, ventilation, and air conditioning equipment, from claims and litigation. It took more than a year and a misleading report to the CPSC before a recall of 2.2 million dehumidifiers was ultimately issued in 2013. Prosecutors contend the faulty dehumidifiers were linked to more than 2,000 incidents and 450 fires.

The two executives were ultimately indicted in 2019 in prosecutions that the government states were the first convictions of corporate executives under provisions of the CPSA that authorize criminal prosecution for failure to report to the CPSC. Last year, the three Gree companies agreed to pay $91 million as part of a deferred prosecution agreement with the US Department of Justice. The two executives were convicted in November 2023 by a federal jury in Los Angeles for conspiracy to defraud the CPSC and for failing to report information required by the CPSA.

With a series of sentencing enhancements, the government says the court should impose two consecutive five-year sentences for each of the executives, followed by three years of supervised release and a criminal fine of between $250,000 and $500,000. The executives are ages 65 and 68. “In this way, the court will send a strong and compelling message … that people matter more than profits, and that corporate executives who illegally prioritize sales over safety do so at their peril — just as Congress intends and consumers expect,” the prosecutors argued to the court. A sentencing hearing is scheduled for June 15.

Whether the court accepts the government’s sentencing recommendations or accepts the two executives’ request for probationary sentences — or imposes a different sentence — the case highlights how important it is for corporate officers to be mindful of the CPSA’s reporting requirements. It also draws attention to the possibility not only of penalties imposed against the company but also of criminal fines and even prison time sought against allegedly complicit corporate executives.

For questions, contact one of the attorneys in Goodwin’s Product Litigation and Counseling Group: Joanne M. Gray, Richard A. Oetheimer, Jonathan I. Price, and Amanda H. Russo.


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