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This story was updated at 5:08 p.m. on Tuesday, July 14, 2020, with more information.

Federal prosecutors have issued subpoenas to Mohawk Industries and its CEO Jeff Lorberbaum in an investigation of claims that the company improperly inflated sales and profits.

Mohawk, the world's biggest floorcovering company and the highest valued publicly traded company in the Chattanooga area, disclosed this week that it received the subpoenas from the U.S. Attorney's office on June 25 as part of an investigation of Mohawk finances by the U.S. Securities and Exchange Commission (SEC).

The government probe comes as shareholders filed an amended class action lawsuit last month alleging that Mohawk fabricated revenues by attempting delivery to customers that were closed and recognizing these attempts as sales. The lawsuit also claims Mohawk overproduced product to report higher operating margins and maintained significant inventory that was not salable.

Mohawk has denied any wrongdoing and said "the company intends to vigorously defend itself in the lawsuit." But investors remain concerned and shares of Mohawk shares were declining in trading on the New York Stock Exchange Tuesday.

Shares of Mohawk initially dropped by more than 8% after the announcement, but the company's stock closed Tuesday down only 3.1% in trading Tuesday on the New York Stock Exchange. Mohawk shares are still down by more than 45% so far this year and are less than a third of the price at the start of 2018.

The class action complaint filed last month by the Public Employees' Retirement System of Mississippi alleges a "fraudulent scheme to fabricate revenues through fictitious 'sales' of products" by Mohawk.

Although the allegations are denied by Mohawk, Wells Fargo analysts noted that Mohawk abruptly dismissed its former chief financial officer, Glenn Landau, in March after only 13 months on the job.

Mohawk also previously faced allegations of price-fixing of carpet prices in the 1990s, which the company also initially denied but ultimately settled by paying $13.5 million to the litigants.

"Though we have no legal expertise, we find both of these items as incremental negatives when considering the current allegations," Wells Fargo said in a recent assessment of Mohawk.

In its SEC filing late Monday, Mohawk said it is "well positioned with a strong balance sheet and limited debt." Mohawk earned $744.2 million on more than $9.8 billion in revenues last year and, despite a slowdown this year, still earned $111 million in the first quarter of 2020.

"We have recently issued over $1 billion of long term bonds to strengthen our ability to strategically invest and better COVID19."

Mohawk has manufacturing operations in 18 countries and sells is hard and soft surface flooring products in more than 170 nations.

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340

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Staff photo by Erin O. Smith / Jeff Lorberbaum, the chairman and chief executive officer of Mohawk Industries, speaks during a flag raising event at Mohawk Industries last year in Calhoun, Georgia.
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