Hedge fund manager covers short bet against Lumber Liquidators

By Svea Herbst-Bayliss

BOSTON (Reuters) - Hedge fund manager Whitney Tilson, who had accused flooring retailer Lumber Liquidators Holdings Inc (LL.N) of selling flooring laced with cancer causing materials and bet the stock price would drop, said on Monday that he has covered his short position.

"In the past week, I've received information that 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," Tilson said in a note seen by Reuters, adding "so I covered my short position today."

"I no longer believe that Lumber Liquidators' stock, at today's price, is an attractive short."

The company's stock price surged 17.43 percent in after hours trading, following a roughly 78 percent decline this year. It closed trading on the New York Stock Exchange at $14.06 on Monday and was later trading at $16.85.

Tilson has been among Lumber Liquidators most vocal critics. He alerted the news program "60 Minutes" about concerns and the program produced a report on the company that alleged its products from factories in China contained potentially hazardous levels of formaldehyde.

The company's chief executive, Robert Lynch, stepped down in May as the scandal over the product swelled.

Tilson publicly announced that he was shorting the stock, betting that its price would drop and that he would repay his loan for the stock for less later. At one point he said the stock price could plunge as low as $9 a share.

On Monday, he wrote that if his new information about the company is correct, then management was "sloppy and naive, but not evil."

"If there are no 'smoking gun' documents/emails, then the doomsday scenario for the company (and the stock) is less likely," Tilson, who runs Kase Capital, wrote.

(Reporting by Svea Herbst-Bayliss; Editing by Bernard Orr)