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Lumber Liquidators accused of formaldehyde violation

Lumber Liquidators Holdings has been accused of selling products containing illegal levels of formaldehyde.

The claims came to light in a report posted on Seeking Alpha last Thursday by analyst Xuhua Zhou. 

Bronstein, Gewirtz & Grossman is among the legal firms investigating the allegations on behalf of purchasers of securities for the company. Another is Faruqi & Faruqi. From June 19 to June 21 -- after the allegations of high levels of formaldehyde surfaced -- shares of Lumber Liquidators fell about 11%. On Tuesday morning, the stock rebounded to above $77.00 in early trading. 

Lumber Liquidators, one of the largest retailers of hardwood flooring in the United States, trades its stocks at nearly 50 times its 2012 earnings, according to Seeking Alpha. Despite presenting a short opportunity to investors, the company lacks a sufficient quality control system, which may be part of the reason for its high margins. The source speculates that product recalls could inflict serious harm to its valuation.

Toana, Va.-based Lumber Liquidators launched an end-of-quarter clearance sale for all of its flooring products on Sunday.