"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," he wrote. "If this information is correct, then the company was sloppy and naïve, but not evil."
Tilson wrote that the lack of a "smoking gun" for Lumber Liquidators means the the "doomsday" scenario of bankruptcy and a zero-dollar price-tag for the stock is less likely.
The investor said his information, the specifics of which he said he couldn't reveal, indicated the company's management continued to sell the laminate in question after a bombshell report "in large part because they genuinely believed that the product was safe and compliant."
Still, Tilson emphasized that his new information did not change his mind "that the company was, in fact, selling dangerous, formaldehyde-drenched laminate and that it completely bungled damage-control efforts after the 60 Minutes story aired."
Before Monday, TIlson wrote, he had maintained "and even added to" his short position in the stock, but he now no longer finds the company to be an "attractive short."
"In the court of public opinion and among regulators, judges and juries, intent matters," he wrote. "If the senior management of Lumber Liquidators didn't have evil intent, then the downside scenarios for the company (and the stock) are less likely and the upside (recovery) scenarios are more likely."
For tax reasons, Tilson said, he covered his short by purchasing in-the-money call options expiring next month, which he expects to close in the new year.