The company Wayfair has been under fire from short seller Whitney Tilson with allegations that select products contain formaldehyde levels exceeding California Air Resource Board (CARB) standards.
Tilson said he had five items of Wayfair’s furniture tested for formaldehyde and, of the three he had received results on, two showed toxic levels. Of the products tested, one is being sold on popular websites including Walmart, Kohl’s, Staples, and Shop Your Way.
In an effort to disprove these allegations, the American Home Furnishings Alliance (AHFA) released test findings. In doing so, AHFA took issue with Tilson’s testing method, which utilized deconstructive testing, a method described as “not a valid method for determining CARB compliance of the components within finished consumer products.”
Tilson’s efforts highlight two important issues. First, the need for greater clarity regarding acceptable testing methods, and the AHFA is currently working with CARB to better understand its intent and procedures.
The second, and perhaps more concerning issue, surrounds the ability of individual activist investors to convict companies in the court of public opinion, when regulatory agencies that are tasked with policing them have not found cause to do so.
Last Spring, Tilson flagged Lumber Liquidators about dangerous levels of formaldehyde in products from China. His allegations against Lumber Liquidators and the resulting story on “60 Minutes” caused dramatic declines in the retailer’s sales and stock price.