The U.S. Consumer Product Safety Commission (CPSC) has published the terms of a settlement agreement reached with Ohio-based HMI Industries Inc. (HMI), over the company’s failure to properly inform the CPSC of defects with its Majestic 360 floor cleaners. HMI has agreed to pay a $725,000 civil penalty and to implement and maintain a compliance program designed to ensure its future compliance with safety statutes and regulations.
Between 2004 and 2006, HMI sold the Majestic 360 floor cleaners nationwide for about $1,800. By February 2009, HMI had received nearly 2,000 reports of arcing, 120 reports of overheating and property damage and injuries to two purchasers of the cleaners. However, HMI reported only 40 complaints of overheating and damage to carpets (and no reports of injury) to CPSC. Not only had HMI failed to fully report all of the incidents, but it also failed to supply CPSC with the information in a timely manner. Federal law requires manufacturers, distributors, and retailers to inform the CPSC of defects that could present a substantial safety hazard within 24 hours. The CPSC’s investigation ultimately led to the recall of 44,000 of the cleaners in April 2009.
HMI’s material misrepresentations to CPSC led to severe consequences for the firm. In addition to the substantial monetary penalty, HMI must implement and maintain a compliance program that includes reporting requirements to CPSC. HMI’s program must be designed to ensure that:
- information required to be disclosed by the firm to the Commission is recorded processed and reported, in accordance with applicable law;
- all reporting made to the Commission is timely, truthful, complete and accurate; and
- prompt disclosure is made to HMI management of any significant deficiencies or material weaknesses in the design or operation of such internal controls that are reasonably likely to affect adversely, in any material respect, the company’s ability to record, process and report to the Commission.
While HMI’s agreement with the CPSC did not include an admission of any violations, its travails should make for a cautionary tale for other manufacturers, distributors and retailers of the importance of timely and accurate reports of potential defects. A well-structured compliance program and trained personnel are key components in avoiding similar problems with federal regulators, who have amped up enforcement in recent years and who take a hard look at companies’ internal compliance policies and programs.