NEW YORK (TheStreet) -- Shares of Lumber Liquidators Holdings Inc. (LL) - Get Report are falling by 24.60% to $39.10 in pre-market trading on Monday morning, following a CBS "60 Minutes" program in which it was reported that the hardwood flooring retailer sold flooring with greater amounts of formaldehyde than the state of California allows under its health and safety rules.

Much of Lumber Liquidators hardwoods flooring is made in China and "60 Minutes" discovered that the levels of formaldehyde found in the laminated materials may not pass safety regulations as the flooring contains six to seven times more formaldehyde than permitted. Formaldehyde is a known cancer causing chemical.

Lumber Liquidators says its China made products are safe but CBS suggests that its own investigation and tests conducted by Denney Larson, the executive director of the nonprofit group Global Community Monitor, and Richard Drury, an environmental attorney, found that isn't the case.

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As part of its investigation "60 Minutes" visited three separate mills that manufacture laminated flooring for Lumber Liquidators. Employees there told investigators that they use core boards containing higher levels of the chemical in an effort to save the company money.

Speaking with CBS's Anderson Cooper, Larson said he wants the company to remove all of the China made flooring. When asked by Cooper how much that would cost Lumber Liquidator Larson responded, "You know what? I don't care. Because they're guilty of selling people product that could make them sick."

Hedge fund manager Whitney Tilson, who runs Kase Capital, also spoke with Anderson Cooper on "60 Minutes" last night saying:

"I've seen hundreds of companies do all sorts of bad things to get their stock prices up. But this has got to be the worst."

Tilson studies the workings of companies he is interested in investing in and he was suspicious that Lumber Liquidators might be breaking the law when he noticed the company's profit margins were "unusually high" when compared to Lumber Liquidators' competitors. 

"When you see a commodity business suddenly double its profit margins, that raises red flags," Tilson told Cooper.

Tilson is the co-author of two books "The Art of Value Investing: How the World's Best Investors Beat the Market" and "More Mortgage Meltdown: 6 Ways to Profit in These Bad Times." 

Additionally, following the "60 Minutes" report Morgan Stanley downgraded Lumber Liquidators to "equal weight" from "overweight," saying that despite that the company has "seemingly taken many actions" in order to deal with the allegations, the firm feels the company's floors still have quality issues. 

On February 27, 2015, RealMoneyPro.com contributor Paul Price penned a piece titled "Finding a Floor in Lumber Liquidators. Here's a snippet of what Price had to say:

"...Is the latest selloff another good entry point or a value trap?

Estimates of financial damages from the wood-sourcing investigation are hard to predict, and "60 Minutes" is scheduled to present a negatively slanted segment on Lumber Liquidators Sunday night. Those factors, though, appear priced into the shares already. Just to be safe, I passed on buying stock outright, but I did take advantage of its depressed price and increased volatility by selling long-term puts at juicy premiums.

Speculators paid as much as $5.86 and $8.50 on Thursday for LL Jan. 2017 $35 and $40 puts, respectively. Writing the more conservative $35 strike only commits to worst-case scenario buying at a net price of $29.14 ($35 strike, $5.86 put premium).

Lumber Liquidators hasn't actually changed hands that cheaply since the first half of 2012. Sales, cash flow, earnings and book value are all substantially higher today than they were three years ago.

The company is debt-free, has no defined benefit pension plan and no preferred stock. Survival is not in doubt.

The ultra-low break-even price on the $35 puts provides a better than 41% margin of safety from the trade inception price of $49.75. Barring other outrageously bad news, that should be more than enough cushion for those willing to shoulder the near-term headline risk.

The best-case scenario will play out as long as LL remains at $35 or better through the Jan. 20, 2017 expiration date. If the shares recover quickly, these 23-month options could probably be covered well before expiration while still locking in good profits."

And as a follow-up, today Paul Price posted the following in RealMoney.com's Columnist Conversation chat room:

"The Sixty-Minutes piece on LL was very negative, as expected.

Pre-market pricing looks to be around $40 down about $10 from Friday's close, which had been up a bit from Thrusday went the news of this story first broke.

I'm sticking with my short puts for the moment. The expirations extend all the way out to 2017 and have break-evens that remain well below current prices, even after this morning's sell-off. There is plenty of time for a stabilization or rebound once the "headline shock" wears off.

American Express (AXP) looked pretty bad a week earlier after falling on legitimate bad news to $77.12 from a yearly high of $96.24. A few days later AXP is starting the week at $81.75, in the absence of any good news.

The firm is debt-free and profitable.

Unless the news on LL worsens quite a bit,the stock is likely near a bottom. Lumber Liquidators is down from a 52-week high of $110.52 already."

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