Answering Questions About Lumber Liquidators by Whitney Tilson, Seeking Alpha.
- I have no connection to Sunshine Park, Larson/GCM or Drury.
- Tom Sullivan is grasping at straws in trying to link me to Barry Minkow.
- Regulators appear to be moving quickly, but it will still likely take months before any take action.
- A response to Lumber Liquidators’ highly misleading and disingenuous statements on testing.
- Regulatory action won’t drive the stock to zero immediately; if that happens, it will likely happen over time due to lawsuits.
- How to analyze the tests 60 Minutes did.
I no longer read the message boards for the articles I publish because the attacks from anonymous trolls causes me too much agita, but I do want to hear thoughtful comments and questions so I invited my readers to communicate directly with me via Seeking Alpha messaging. Seven people took me up on this offer, so I posted my replies on the message board and wanted to share them more broadly here.
Question 1 (from Eric):
Dear Mr. Tilson,
I appreciate your effort of answering the questions that many of us have had. Would you consider provide further transparency and give us some information about your connection to GCM and its joint plaintiff Sunshine Park LLC? Lumber Liquidators had claimed that GCM and Sunshine Park LLC are motivated by short sellers, but Sunshine Park LLC had remained silent through the trial. Do you know anything about who is behind this entity?
Thank you for your time, and I look forward to your answer.
Thank you for your question. It’s an easy one: contrary to the company’s claim that “These attacks are driven by a small group of short-selling investors who are working together…”, there’s no such conspiracy (at least to my knowledge). I have no idea who the hedge fund(s) are behind Sunshine Park LLC, nor have I met or had any communication with Denny Larson, the executive director of Global Community Monitor, or Richard Drury, the prominent environmental attorney, both of whom were featured in the 60 Minutes story.
I can only assume that the hedge fund(s) behind Sunshine Park figured out, as I did, that Lumber Liquidators was poisoning its customers, but chose a different route than I did to be an activist (by hiring Larson and Drury).
Question 2 (paraphrasing questions from multiple people):
Lumber Liquidators’ founder and Chairman, Tom Sullivan, accused you at the end of his CNBC interview of being linked to twice-convicted felon Barry Minkow. What is your response?
Tom Sullivan’s attempt to smear me by association shows how desperate (and clueless) he is.
This is an old and not-very-interesting story, but here goes: After Minkow finished serving 7½ years in prison for the ZZZZ Best scam, he appeared to have turned over a new leaf, becoming a pastor and doing great work uncovering frauds. His original targets were penny stock companies and Ponzi schemes – and, as former fraudster himself, he was very good at identifying frauds/scams to the point where he became a guest on Your World with Neil Cavuto as a fraud expert, was profiled by The Wall Street Journal, Bloomberg News and 60 Minutes (how ironic, eh?), and received a letter of commendation from the FBI for bringing something like 18 scams to their attention so they could shut them down.
He ended up establishing the Fraud Discovery Institute, a for-profit investigative firm, and some of his early work was top-notch, pioneering research on the multi-level marketing industry. I thought the industry was (and still is!) really scummy and had a short position in Usana at the time, so I signed up for Minkow’s service, paid him $70k from May 2007 through April 2008, and he shared his research on the MLM industry with me. (I also liked the idea of a fraudster turned fraud-catcher and wanted to support him, as I believed – very wrongly, as later events showed – in his redemption story.)
Then his research slowed to a trickle, so I stopped paying him and we lost contact.
In 2009, unbeknownst to me, he began a reprehensible short-and-distort campaign against Lennar (NYSE:LEN), the homebuilder. Lennar sued him, showed what he was doing, and a judge sent him back to prison in 2011 to serve a richly-deserved five-year sentence. (See Wikipedia for the full story.)
I had nothing to do with any of this, but Sullivan is obviously insinuating that I’m doing to his company what Minkow tried to do to Lennar. This is, of course, absurd.
I am guilty of perhaps wasting my money and certainly being a bad judge of character in this particular instance – a master con man fooled me (and a lot of other folks) – but that’s all.
Question 3 (from Ray):
“I value what you do and it is not always easy to be facing off an evil doing company or entity.
What is puzzling to me is that why California CARB regulatory agency has not stepped forward to put an end to the mis-labeling practices of Lumber Liquidators or other companies doing the same?
Is there anything that we can do to help?”
Thanks for your question. I’m not surprised that CARB hasn’t taken any action yet. My experience with most regulatory agencies is that they take forever to take action, even in the most obvious cases of wrongdoing. In fairness, it can take time to document everything, to ensure that whatever action they take will hold up in court when the company inevitably countersues/appeals.
I think there’s a lot of scrutiny/pressure on CARB (and other regulatory agencies like the Consumer Product Safety Commission), however, so I’d be surprised if there isn’t meaningful action in the next month or two.
Question 4 (from Clayton):
Whitney I was hoping you can comment on Lumber Liquidators’s quote on CARB, located on the third line on Page 4: app.quotemedia.com/data/downloadFiling?w…
“CARB has indicated to us that no one in the industry is required to conduct deconstructive testing for compliance purposes ”
Why is CARB apparently telling Lumber Liquidators one thing and you another?
Thank you for your question. This is a typical statement from Lumber Liquidators: true but highly misleading and disingenuous. CARB doesn’t require testing of finished laminate at all (only the initial medium-density fiberboard, before it’s made into laminate), but if testing of finished product is done, it specifies clearly that it must first be deconstructed.
If you’re interested in the details of exactly why Lumber Liquidators’ claim that 60 Minutes (and others’) testing is “improper” is wrong – it’s their testing that’s questionable and/or improper – I suggest reading a few of my articles:
- Why Lumber Liquidators’ Wood Testing Doesn’t Comply With CARB;
- Lumber Liquidators’ Campaign Of Distraction And Deception;
- A Response To Lumber Liquidators; and
- Explaining Lumber Liquidators’ Reckless Strategy And Rebutting Its Claims About Deconstructive Testing.
Question 5 (from Ken):
I see the issue not as “this test vs. that test” but whether or not there was deliberate mis-labeling of product and if Lumber Liquidators had knowledge, should have had knowledge or was complicit.
Obviously, the factory workers statement is anecdotal evidence.
My question is simply:
What steps are or can be taken to investigate the veracity of their claims? …. and are they underway or likely to be pursued?
Is there any indication of what tests the mill used to certify