US: Appliance Co. Lied About Dangerous, Fiery Defect

WASHINGTON, D.C.— -- A Chinese dehumidifier manufacturer attempted to cover up and lie about a potentially deadly defect in which the humidifiers, sold in popular American stores, can suddenly catch on fire, U.S. officials alleged today. The company has agreed to pay a record $15.45 million civil penalty related to the purported dangerous defect, but under the terms of the agreement, does not admit to the officials' allegations.

The head of the U.S. Consumer Product Safety Commission (CPSC), Elliot Kaye, made the penalty announcement against Gree Electric Appliances Inc., a China-based company that had a sales division in California, saying today it is "totally unacceptable that a company would put [the product] out on the market and continue to keep on the market while delaying reporting to us and misleading us... about these products that provided a completely unreasonable risk to human life and to property from fire."

Gree made dehumidifiers under 13 different brands like GE, Frigidaire and Kenmore. The CPSC said some 2.5 million were sold nationwide from 2005 to 2013 in popular retails stores like Home Depot and K-Mart, and online through major websites like Amazon and Ebay.

The CPSC estimates the fires caused by the defect resulted in nearly $4.5 million in property damage. The $15 million fine is the largest levied by the CPSC against a company in its history, a CPSC official told ABC News.

Gree began receiving reports of smoking, sparking and fires causing property damage in 2012, according to the CPSC settlement agreement. But, the government alleges, the company didn't immediately notify the CPSC of the issues and continued to sell the dehumidifiers with the known defect.

The CPSC said that when investigators looked into the complaints, the company allegedly lied about the risk in an effort to downplay it. The CPSC said the company also then quietly changed the product to make it safer, again without notifying U.S. safety officials.

"That conduct is not going to be tolerated," Kaye said today. "If there's any confusion about what this civil penalty means, let's be very clear about it. It's not going to be tolerated for these companies to write these penalties off as the cost of doing business."

Gree announced recalls for the humidifiers in question in 2013 and again in 2014.

When asked if the case had been referred to the Department of Justice for a possible criminal investigation, Kaye only said that his office has no problem referring "bad actors" to the DOJ. Asked if there is a list of companies the CPSC would consider referring, Kaye responded, "internally, absolutely."

Kaye made his public remarks in Washington, D.C. at Consumer Assembly, an annual conference attended by consumer advocates from government agencies and the private and non-profit sectors, organized by Consumer Federation of America.

In addition to paying the civil penalty, Gree agreed to implement CPSC compliance programs as well as improve its internal processes. An individual who answered the phone at a number associated with Gree’s California offices told ABC News the office is no longer part of the company and that all Gree’s operations are in China now. ABC News was unable to reach representatives for the company in China during off hours.