Lumber Liquidators Surges as Tilson Covers Short Bet

Dow Jones Newswires

Lumber Liquidator Holdings' stock surged 20% to $17 Monday in after-hours trading after hedge-fund manager Whitney Tilson said he had covered his short position.

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Mr. Tilson, who runs Kase Capital Management, was one of the first investors in November 2013 to publicly question the sourcing practices of Lumber Liquidators.

The company came under further scrutiny in March after the CBS program "60 Minutes" aired a segment suggesting the laminate-flooring material sold by Lumber Liquidators and made in China didn't meet California's emissions standards on levels of formaldehyde, a known carcinogen.

Mr. Tilson told The Wall Street Journal after the "60 Minutes" segment aired that he wouldn't cover his roughly $2.3 million bet against the company and he expected the stock to go to zero. He had been adding to his short bet, which as of June was his largest position of its kind.

His opinion, however, has now changed.

He said Monday in a blog post on Seeking Alpha that he had changed his mind about the company based on new information, which he said he couldn't discuss beyond saying that it "leads me to believe that senior management of Lumber Liquidators wasn't aware that the company was selling Chinese-made laminate that had high levels of formaldehyde."

"If true," Mr. Tilson wrote, "it does change the narrative from a company that was knowingly endangering its customers to save on its sourcing costs to one that was duped by Chinese suppliers and/or middlemen into believing that it was receiving CARB2-compliant laminate."

Lumber Liquidators wasn't immediately available for comment.

Write to Maria Armental at maria.armental@wsj.com