May 21, 2015 / 6:14 PM / 2 years ago

Lumber Liquidators' troubles deepen as CEO abandons ship

A Lumber Liquidators retail store is shown in San Diego, California March 2, 2015. REUTERS/Mike Blake

(Reuters) - Lumber Liquidators Holdings Inc (LL.N) said Chief Executive Robert Lynch had unexpectedly resigned, nearly three months after a report alleged that the company sourced flooring laminates with harmful levels of a known carcinogen.

The company’s shares fell 17 percent to $20.97, their lowest in 39 months, making it the biggest percentage loser on the New York Stock Exchange on Thursday.

Lumber Liquidators is facing several investigations and lawsuits after an episode of CBS’s “60 Minutes” alleged in March that laminate products it sourced from China contained toxic levels of formaldehyde.

The company is also facing criminal charges resulting from a 2013 U.S. Department of Justice probe related to the import of some flooring products.

Whitney Tilson, whose hedge fund Kase Capital is shorting the stock, said Lynch’s resignation likely meant that Lumber Liquidators was under immense pressure from regulators and that he expected them to take “decisive action” against the company.

“Lynch was likely under immense pressure from the board, saw the writing on the wall, and decided to jump before being pushed,” he said.

Tilson said he was not increasing his short position on Lumber’s stock but would keep it as his largest short.

Lynch’s departure comes less than a month after Chief Financial Officer Daniel Terrell quit.

“This is another knock on the business and the stock, and makes it more problematic to own here,” Janney Capital Markets analyst David Strasser said in a research note.

Lynch took over as CEO in January 2012.

Founder Thomas Sullivan has been named acting CEO while the company looks for a replacement.

Lumber Liquidators, which said Lynch also stepped down as director, did not give a reason for his exit and declined to comment beyond the statement it issued on Thursday.

The company suspended sales of all laminate flooring sourced from China this month, after sales fell 13 percent in March.

But the move has failed to pacify shareholders. About 31.8 percent of the company’s outstanding shares were on loan for short bets as of Wednesday, according to financial data firm Markit, suggesting investors were expecting more bad news.

KeyBanc Capital Markets analyst Bradley Thomas said he expected the company’s results to miss Wall Street estimates in the second and third quarters.

As of Wednesday’s close, Lumber Liquidators’ shares had lost nearly two-thirds of their value since Feb. 24, the day before it disclosed that CBS was going to air the allegations.

Additional reporting by Jennifer Ablan, David Gaffen, Saqib Iqbal Ahmed and Chuck Mikolajczak; Editing by Simon Jennings and Sayantani Ghosh

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