A hard-hitting report by the 60 Minutes television news program sent shares of
The 60 Minutes report that aired Sunday presented evidence that Lumber Liquidators had sold laminate flooring made in China that contained formaldehyde levels that surpassed California health standards.
Lumber Liquidators had given investors a heads up as part of its recent earnings release that 60 Minutes was preparing to report negatively about the company, which caused the company’s shares to already fall by some 25% last week.
In a statement, Lumber Liquidators said the company complies with applicable regulations set by the California Air Resources Board and argued that some of the evidence presented by 60 Minutes on Sunday was just plain wrong. "These attacks are driven by a small group of short-selling investors who are working together for the sole purpose of making money by lowering our stock price," the company said.
Lumber Liquidators is correctly pointing the finger at short-selling investors that bet against a company's stock price, but that doesn’t necessarily weaken the evidence presented by 60 Minutes on Sunday evening.
Whitney Tilson, a hedge fund manager who has been betting against the shares of Lumber Liquidators since 2013, appeared on the 60 Minutes program, which described Tilson getting a tip about the company’s China-made laminate flooring.
“Six months after he bet millions the stock would go down, Whitney Tilson got tipped off by someone familiar with Lumber Liquidators’ operations in China, who said he was missing the bigger story,” 60 Minutes reported on Sunday. Tilson said on the program that “the much bigger story, he said is that Lumber Liquidators was almost certainly purchasing formaldehyde-tainted laminated flooring in China.”
Not so long ago, Lumber Liquidators had one of the hottest stocks on Wall Street, reporting good-looking financial results that got Tilson's attention. The stock closed over $119 in November 2013, just before Tilson launched his short campaign against the company. It has since become a battleground stock. The stock was halted for most of Monday morning, but was changing hands for $40 after trading began.
The 60 Minutes report was a big victory for the short-selling hedge funds. 60 Minutes reported on Sunday that it sent laminate flooring samples that Lumber Liquidators had sold in several states for testing at two certified labs and found that nearly all of the samples were not compliant with California formaldehyde emissions standards. Some of the samples were more than 13 times over the California formaldehyde limit, according to 60 Minutes. The news program also showed video footage taken at some of the China-based warehouses that supply Lumber Liquidators that showed representatives of the suppliers saying their product was not compliant with California CARB heath standards.
In a statement, Lumber Liquidators said that "we believe that 60 Minutes used an improper test method in its reporting that is not included in CARB's regulations and does not measure a product according to how it is actually used by consumers."
"After becoming aware of the nature and content of the 60 Minutes story, we immediately reached out to the Chinese suppliers included in the story. The suppliers have confirmed that all products provided to Lumber Liquidators have been and are CARB compliant," Lumber Liquidators said in a statement. "The suppliers could not verify the identity of the individuals appearing in the videos. One of the suppliers featured questioned whether the product shown was actually from its factory."
When 60 Minutes confronted Lumber Liquidators founder Tom Sullivan with the news program's findings, Sullivan said on the news program that “it started with short sellers.”
Some Wall Street analysts took a dimmer view of Lumber Liquidators following the 60 Minutes report.
