Black Diamond and its parent company Clarus Corporation warned investors that they face legal, reputational, and financial risks after receiving subpoenas last month as part of an investigation by the U.S. Attorney’s Office for the District of Utah.
The investigation is related to the U.S. Consumer Products Safety Commission’s (CPSC) conclusion that it did not respond quickly enough to a problem with avalanche transmitters distributed by Black Diamond, according to documents filed by Clarus with the SEC on Friday. CPSC also said Clarus and Black Diamond misrepresented the issue and recommended that it impose “substantial civil monetary penalties,” according to background included in its fiscal 2023 report.
Clarus and Black Diamond dispute the findings, and are cooperating with the investigation and the subpoenas for documents related to the transmitters, “among other things,” according to the update.
Black Diamond Equipment declined to comment beyond the SEC filing because of the ongoing nature of the investigation. A CPSC spokesperson told SESO that the agency does not disclose information about investigations.
In October and December 2023, CPSC notified Black Diamond (BDEL) of its findings.
“By letters dated October 12, 2023 and December 18, 2023, BDEL was notified by the CPSC that the agency staff has concluded we failed to timely meet our statutory reporting obligations under the Consumer Product Safety Act with respect to certain models of BDEL’s avalanche transceivers switching unexpectedly out of ‘send’ mode and certain models of BDEL’s avalanche transceivers not switching from ‘send’ mode into ‘search’ mode, that we made a material misrepresentation in a report to the CPSC, and that the agency staff intends to recommend that the CPSC impose substantial civil monetary penalties,” reads a section in Clarus’s fiscal 2023 annual report.
Clarus and BDEL responded in November 2023 and February 2024 disputing the findings and CPSC’s recommendation to impose a penalty.
“The CPSC may ultimately disagree with our position and the agency staff has recommended substantial civil monetary penalties which the company intends to strongly contest and vigorously defend against,” reads the report. “We cannot assure on what terms this matter will be resolved.”
Avalanche Beacon Transceiver Recalls
The investigation is related to BDEL’s response to problems with avalanche beacon transceivers distributed by the company and subsequent recalls of the products.
BDEL contacted CPSC in January 2021 with its solution to a problem with some models of its avalanche beacon transceivers, which could unexpectedly switch out of ‘send’ mode by locking the transceiver into that mode. It also requested the products be approved for a fast-tracked recall program.
CPSC approved the recall and the corrective plan in March 2021.
In October 2021, CPSC informed BDEL it was investigating the company’s response to the problem and whether it had “timely complied with the reporting requirements of Section 15(b) of the Consumer Protection Safety Act and related regulations regarding certain models of avalanche transceivers switching unexpectedly out of ‘send’ mode.”
A similar situation arose again in 2022, when BDEL filed a report and applied for a fast-track of a voluntary recall of avalanche transceivers with an electronic malfunction that meant it would not switch from “send” to “search” mode. The plan was again approved in August 2022, and the company again received notice that was under investigation. BDEL and Clarus cooperated with the investigation and provided additional documents, according to the report.
“Based on currently available information, the company cannot estimate the amount of the loss (or range of loss) in connection with this matter,” reads the report. “We believe it is reasonably possible that a change in our ability to estimate the amount of loss could occur in the near term and that the change in the estimate could be material. In addition, as this matter is ongoing, the company is currently unable to predict its duration, resources required or outcome, or the impact it may have on the company’s liquidity, financial condition, results of operations and/or cash flows. A penalty imposed by the CPSC or other regulators could be costly to us and could damage our business and reputation as well as have a material adverse effect on the company’s liquidity, stock price, consolidated financial position, results of operations and/or cash flows.”
Black Diamond has issued several repair solutions and recalls of avalanche safety beacon products in recent years, including:
- PIEPS Pro IPS Avalanche Transceiver (November 2024)
- Recon LT Avalanche Transceiver (March 2023)
- PIEPS and Black Diamond branded avalanche transceivers (July 2022)
- Pieps DSP Recall (April 2021)
Black Diamond Turnaround
Black Diamond has been in the midst of restructuring, and those efforts have started to show results.
The brand’s adjusted EBITDA increased by 25%, while revenue dropped 19% to $49.3 million in the third quarter ended Sept. 30.
Brand President Neil Fiske, who joined Black Diamond in February 2023, said in March 2024 that the company was narrowing its focus on its core climbing consumers.
“The brand had become way over-extended,” he said in March of last year. “We were trying to do way too many things, go into too many categories with too much complexity. And it’s simply overwhelmed the organization.”
Kate Robertson can be reached at kate@shop-eat-surf-outdoor.com.
