Lumber Liquidators has reached a settlement with California over its laminate flooring

Lumber Liquidators said it has reached a settlement agreement with the State of California Air Resources Board (CARB) over its inquiry into its laminate flooring.

The company said it will pay a $2.5 million fine.

The specialty floor retailer has been under pressure after questions were raised a year ago regarding levels of formaldehyde found in its Chinese laminate flooring. The levels were higher than what’s permitted under California law.

Shares of Lumber Liquidators were last trading up just over 4%, or $0.50, at $12.51 per share. The stock had risen as much as 10% on the news.

Here’s the company’s 8-K filing with the news:

On March 18, 2016, Lumber Liquidators Services, LLC (“LL”), a subsidiary of Lumber Liquidators Holdings, Inc. (the “Company”), entered into a Settlement Agreement and Release (the “Settlement Agreement”) with the State of California Air Resources Board (“CARB”) to resolve CARB’s inquiry relating to certain laminate flooring sourced from China sold in the Company’s stores prior to May of 2015. The Settlement Agreement does not constitute an admission of any wrongdoing by LL, the Company or any other entity and provides that CARB releases LL and its related parties from any and all claims that CARB may have pertaining to those products. A copy of the press release announcing the settlement is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Under the terms of the Settlement Agreement, LL agreed to pay a total sum of $2.5 million upon execution of the Settlement Agreement. LL also agreed to implement certain voluntary measures, including a risk based supplier audit program and testing research program as described in the Settlement Agreement.

Just over a year ago, Lumber Liquidators was the subject of a “60 Minutes” investigation that exposed the company’s Chinese laminate flooring formaldehyde concerns. High levels of formaldehyde have a number of health concerns.

The stock has collapsed more than 75% since then.

The shorts

Lumber Liquidators is also a short position of hedge fund manager Whitney Tilson of Kase Capital.

Tilson had covered his short in December. However, Tilson said he reentered his short position earlier this month.

During a presentation at the Harbour Investment Conference this month, Tilson said there’s new information that has come to light making it a worthwhile short once more. He believes that the cancer risk is greatly higher than the CDC’s revised assessment that came out in February.

He also believes there’s a 50% chance that Lumber Liquidators goes bankrupt.

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