Lumber Liquidators blames the shorts

FOX Business Senior Correspondent Charlie Gasparino on the controversial 60 minutes report attacking Lumber Liquidators and why hedge funds are short selling their shares.

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Lumber Liquidators Blames Short-Sellers for Damning Expose

Lumber Liquidators (LL), the embattled hardwood flooring retailer, is going on the offensive, lashing out at Wall Street traders and the news show "60 Minutes" for spreading "inaccurate allegations" about the safety of the company’s products, the FOX Business Network has learned.

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In recent days, the company's sales representatives have been armed with scripts to address concerns from customers about a "60 Minutes" report that said the company’s products contain cancer-causing toxins. The Toano, Va.-based company denies the charge, and its scripts, read by customer service representatives, blame "hedge-fund short-sellers” with “trying to scare [their] customers with inaccurate allegations." Lumber Liquidators in these scripts also says "60 Minutes" has aired those allegations while ignoring data that shows the company’s products to be safe.

A spokesperson for Lumber Liquidators didn’t return numerous calls for comment. A "60 Minutes" spokesperson declined to comment.

The program's report, which aired two weeks ago on CBS, focused on the company’s laminate flooring that is manufactured in China. It showed that when tested, the product had high levels of carcinogenic formaldehyde, a carcinogen -- at least six times more than the legal limit in California. The company, however, argues all their products pass regulatory standards.

Since the initial airing of the "60 Minutes" report, shares of Lumber Liquidators have plummeted more than 40% (and nearly 70% from its 52-week high back in March 2014) as California regulators launched a probe into the safety of the company’s products. The company on Thursday will hold a conference call with analysts to address the controversy and update investors on its current quarter.

The company is also expected to address Wall Street concerns that it does not have sufficient cash or liquidity to survive the fallout from the scandal. Shares have rebounded more than 12% Tuesday as a major investor, Blackrock, reported that it boosted its stake in the company from 9.13% to 10.1%. The flooring retailers' stock closed up 5.8%.

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Recently, U.S. Senator Bill Nelson, (D-FL), has called for a federal probe into the practices of Lumber Liquidators. The ranking democrat on the Senate Committee on Commerce, Science and Transportation Committee, has sent letters to the Consumer Product Safety Commission (CPSC), CDC and the FTC. The committee is expected to make an announcement on the matter sometime Tuesday.

In a recent phone call with the company’s customer care line, representatives have talking points ready stressing that despite the news reports, Lumber Liquidators complies “with all applicable regulations regarding our products.”

When asked about the cancer-causing toxin specifically, the service representative refers to a scripted response, stating, “It is unfortunate that there are some out there, whether it is, certain competitors or hedge-fund short-sellers, who are trying to scare our customers with inaccurate allegations.”

However, some callers tell FOX Business that Lumber Liquidator representatives have also explained to callers exactly what short-selling is: A type of trade that becomes profitable when investors borrow shares of a stock, sell them, and then repay the borrowers when the shares decline in price. The reps explain that these traders make money by spreading negative information about target companies, one caller told FOX Business.

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