Whitney R.

Tilson
Managing Partner

phone: 212 277 5606

WTilson@KaseCapital.com

April 2, 2015
Dear Partner,
Our fund gained 0.5% in March vs. -1.6% for the S&P 500. Year to date, our fund is off to a
good start, up 2.5% vs. 1.0% for the S&P 500.
(Note that I am now reporting our funds net returns, reflecting the 20% performance allocation,
as most investors, Im pleased to say, are now above their high-water mark meaning that we
have recouped for you the losses of 2011 and 2012.)
Our fund had gains on both the long and short sides in Q1. Regarding the former, we had doubledigit gains in JetBlue (21.4%), Howard Hughes (18.9%), Spark Networks (13.8%), Fannie Mae
(12.4%), Platform Specialty Products (10.5%) and Pershing Square Holdings (10.0%). Partially
offsetting these gains were declines in Micron (-22.5%), magicJack (-15.8%), Hertz (-13.0%)
and Avis (-11.0%).
On the short side, there are only seven positions remaining in the fund (for reasons discussed in
my annual letter), but two were big winners with Lumber Liquidators tumbling 53.5% and Exact
Sciences declining 19.8%. These gains were partially offset by Unilife, Herbalife and TMF,
which rose 19.7%, 13.4% and 10.4%, respectively.
As of the end of March, the fund was 91% long and 14% short. I exited two small positions in
Goldman Sachs (long) and Green Dot (short) during the quarter and, despite continuing to look
hard, didnt establish any new positions. This is not unusual, as I seek to keep portfolio turnover
to an absolute minimum and invest for the long term.
Lumber Liquidators
I did spend more time on the short side in the first quarter than I expect to going forward, but this
was for a good reason: 60 Minutes did an incredibly damning story about our largest short
position, Lumber Liquidators, which was the main catalyst for the stock getting cut in half (it
was a remarkable piece of investigative journalism; click here to watch it and/or read the
transcript).
When I first discovered compelling evidence nearly a year ago that Lumber Liquidators was
selling its American customers hundreds of millions of square feet of laminate flooring sourced
in China that contained high levels of formaldehyde a dangerous chemical and known
carcinogen I assumed that once this information became public, the company would follow the
standard playbook: apologize, immediately suspend sales of the toxic product, fix the underlying
problem, claim (however improbably) that its Chinese suppliers duped them, and make amends
to its customers.

Carnegie Hall Tower, 152 West 57th Street, 46th Floor, New York, NY 10019

Had the company done this, I would have likely covered at least some and perhaps all of this
position and moved on, having earned a very substantial gain, as I initially shorted the stock at
$102.69 in October 2013 (it closed March at $30.78).
Instead, however, Lumber Liquidators has denied that theres any problem whatsoever and
adopted a no-holds-barred attack on its critics (not only me, which I expected, but also 60
Minutes, one of the most respected news programs in the world, which it accuses of making up
this story). Most shockingly, the company is continuing to sell its Chinese-made laminate to its
customers, assuring them that its 100% safe, despite overwhelming evidence to the contrary.
What could explain this obviously foolish and reckless behavior? I suspect its because they
werent duped by their suppliers at all. Rather, I have good reason to believe that for quite some
time theyve known exactly what they were doing: going to China and buying laminate flooring
(and perhaps other types of flooring as well Im looking into this) that doesnt comply with
California Air Resource Board (CARB) standards and thus may have dangerous levels of
formaldehyde.
Why would they do something so immoral and potentially destructive? The oldest reason in the
universe: greed. Non-CARB-compliant laminate is ~10% cheaper, so the company saved a lot of
money on sourcing costs (not a few pennies, as the founder claims), which I think was a major
contributor to a quick doubling of margins, which in turn helped send the stock price up eight
times from $15 to $119 in less than two years. Both the founder, Tom Sullivan, and the CEO,
Robert Lynch, recognized a golden opportunity when they saw it, dumping $37 million worth of
stock at prices more than double todays level in early- to mid- 2013.
If Im right that the company has been knowingly putting untold numbers of American families
at risk, they must surely be feeling truly desperate now that theyve been caught red-handed, as
this is the kind of thing that could not only result in an implosion of the company but also big
financial penalties and even criminal charges against senior executives. Consequently, from
managements perspective, their current strategy actually might be logical in a twisted sort of
way: deny everything, muddy the waters as much as possible by taking advantage of the
uncertainty about the testing methods and the harm formaldehyde causes, bully critics and
regulators, and hope the storm passes. If their strategy is to claim that all of their flooring is
100% safe, then they cant stop selling any of it or it would undermine their claim.
For the sake of the health and safety of Lumber Liquidators customers, I wish the company
would stop selling what I believe is a dangerous product, but as someone who is short the stock,
Im actually delighted that the company has adopted a strategy that I think is truly insane. First of
all, managements credibility is plunging every day they continue to make the preposterous claim
that theres no problem at all. Perhaps the problem is minor, but theres definitely a problem.
Secondly, more than 70 class action lawsuits have already been filed against Lumber Liquidators
and when they start reaching courtrooms, the fact that the company continued to sell tainted
wood after the 60 Minutes segment aired will look very bad. Rather than perhaps earning some
sympathy by claiming they were deceived by the Chinese mills, they will instead look like rogue
actors.

-2-

Thus, I more than doubled our short position during the week after the 60 Minutes story aired,
making it a 3.5% position currently. I believe this is large enough to warrant additional time and
attention, but not so large that it might cause me to lose sleep at night if the stock bounces around
a bit (which I fully expect).
If youre interested in learning more about this story, click here to see two public presentations I
made in November 2013 and October 2014, and click here to read the articles Ive published in
the past month.
As always, thank you for your support and please let me know if you have any questions.
Sincerely yours,

Whitney Tilson
The unaudited return for the Kase Fund versus major benchmarks (including reinvested
dividends) is:
Kase Fund net
S&P 500

March
0.5%
-1.6%

YTD
2.5%
1.0%

Since Inception
186.1%
127.6%

Past performance is not indicative of future results. Please refer to the disclosure section at the end of this letter. The Kase Fund
was launched on 1/1/99.

Kase Fund Performance (Net) Since Inception

200
180
160
140
120
100
(%) 80

60

40
20
0
-20
-40
Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Kase Fund
Past performance is not indicative of future results.

-3-

S&P 500

Kase Fund Monthly Performance (Net) Since Inception

1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P
Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500
January

7.8

4.1

-6.3

-5.0

4.4

3.6

-1.8

-1.5

-5.5

-2.6

4.7

1.8

1.1

-2.4

1.9

2.7

2.4

1.7

1.9

-5.9

-3.6

-1.6

-3.6

-2.8

2.4

12.6

4.5

4.5

5.2

-2.2

-3.5

-5.9

February

-2.9

-3.1

6.2

-1.9

-0.6

-9.2

-1.1

-2.0

2.9

-1.6

7.0

1.5

2.1

2.0

-3.1

0.2

-3.3

-2.1

-6.9

-3.3

-8.9 -10.8 7.3

-8.4

3.1

4.1

3.4

-0.8

4.3

0.8

1.4

9.1

4.6

8.4

5.7

March

4.1

4.0

10.3

9.8

-2.6

-6.4

3.0

3.7

1.4

0.9

3.9

-1.5

3.9

-1.7

3.9

1.3

-0.8

1.1

-2.3

-0.5

2.9

9.0

4.6

6.0

-4.1

0.0

10.9

3.3

1.3

3.8

1.7

0.8

0.6

-1.6

1.3

2.6

1.0

April

2.1

3.7

-5.1

-3.0

5.1

7.8

-0.2

-6.0 10.5

8.2

2.4

-1.5

0.6

-1.9

2.2

1.4

4.4

4.6

-0.9

4.9

20.1

9.6

-2.1

1.6

1.9

3.0

-0.6

0.1

1.9

2.1

0.7

May

-5.7

-2.5

-2.8

-2.0

1.8

0.6

0.0

-0.8

6.6

5.3

-1.4

1.4

-2.6

3.2

1.8

-2.9

2.5

3.3

7.9

1.2

8.1

5.5

-2.6

-8.0

-1.9

-1.1 -13.6 -6.0

2.8

2.3

2.6

2.3

June

2.2

5.8

4.1

2.4

4.6

-2.4

-7.3

-7.1

2.9

1.3

0.1

1.9

-3.1

0.1

-0.2

0.2

-3.0

-1.5

-1.2

-8.4

-5.0

0.2

4.5

-5.2

-2.4

-1.7

0.5

4.1

-1.0

-1.3

-0.3

2.1

July

-0.7

-3.2

-3.6

-1.6

-1.1

-1.0

-5.0

-7.9

2.3

1.7

4.6

-3.4

0.5

3.7

-0.9

0.7

-5.4

-3.0

-2.5

-0.9

6.8

7.6

3.5

7.0

-4.6

-2.0

0.2

1.4

-0.1

5.1

2.0

-1.4

August

0.5

4.1

-0.4

5.4

6.1

2.5

-6.3

-4.3

0.4

1.9

-0.9

0.4

-3.2

-1.0

2.9

2.3

1.7

1.5

-3.3

1.3

6.3

3.6

-1.5

-4.5 -13.9 -5.4

-7.2

2.3

-5.8

-2.9

-0.2

4.0

September -3.3

-2.7

-7.2

-5.3

-6.1

-8.1

-5.4 -10.9 1.7

-1.0

-1.6

1.1

-1.5

0.8

5.0

2.6

-1.1

3.6

15.9

-9.1

5.9

3.7

1.7

8.9

0.0

2.6

3.9

3.1

-1.7

-1.4

October

8.1

6.4

-4.5

-0.3

-0.8

1.9

2.8

8.8

6.2

5.6

-0.4

1.5

3.5

-1.6

6.3

3.5

8.2

1.7 -12.5 -16.8 -1.9

-1.8

-1.7

November

2.8

2.0

-1.5

-7.9

2.3

7.6

4.1

5.8

2.2

0.8

0.8

4.0

3.1

3.7

1.9

1.7

-3.6

-4.2

-8.9

-7.1

-1.2

6.0

-1.9

December

9.8

5.9

2.3

0.5

6.5

0.9

-7.4

-5.8

-0.4

5.3

-0.2

3.4

-1.3

0.0

1.4

1.4

-4.3

-0.7

-4.0

1.1

5.5

1.9

0.5

YTD
TOTAL

31.0 21.0 -4.5

-9.1 16.5 -11.9 -22.2 -22.1 35.1 28.6 20.6 10.9

2.6

4.9

25.2 15.8 -3.2

-9.3

-7.0

3.8

7.0

10.9

1.6

-1.9

5.6

4.6

-1.4

2.5

0.0

-0.6

-0.2

-4.5

0.6

0.2

3.0

2.6

2.7

6.7

0.1

1.0

0.1

0.9

3.6

2.5

-0.4

0.3

5.5 -18.1 -37.0 37.1 26.5 10.5 15.1 -24.9 2.1

-1.7 16.0 16.6 32.4 13.7 13.7

-3.0

Past performance is not indicative of future results.

Note: Returns in 2001, 2003, 2009, 2013 and 2014 reflect the benefit of the high-water mark, assuming an investor at inception.

-4-

The T2 Accredited Fund, LP (dba the Kase Fund) (the Fund) commenced operations on January 1,
1999. The Funds investment objective is to achieve long-term after-tax capital appreciation
commensurate with moderate risk, primarily by investing with a long-term perspective in a concentrated
portfolio of U.S. stocks. In carrying out the Partnerships investment objective, the Investment Manager,
T2 Partners Management, LP (dba Kase Capital Management), seeks to buy stocks at a steep discount to
intrinsic value such that there is low risk of capital loss and significant upside potential. The primary
focus of the Investment Manager is on the long-term fortunes of the companies in the Partnerships
portfolio or which are otherwise followed by the Investment Manager, relative to the prices of their
stocks.
There is no assurance that any securities discussed herein will remain in Funds portfolio at the time you
receive this report or that securities sold have not been repurchased. The securities discussed may not
represent the Funds entire portfolio and in the aggregate may represent only a small percentage of an
accounts portfolio holdings. The material presented is compiled from sources believed to be reliable and
honest, but accuracy cannot be guaranteed.
It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will
prove to be profitable, or that the investment recommendations or decisions we make in the future will be
profitable or will equal the investment performance of the securities discussed herein. All
recommendations within the preceding 12 months or applicable period are available upon request. Past
results are no guarantee of future results and no representation is made that an investor will or is likely to
achieve results similar to those shown. All investments involve risk including the loss of principal.
Performance results shown are for the Kase Fund and are presented net of all fees, including management
and incentive fees, brokerage commissions, administrative expenses, and other operating expenses of the
Fund. Net performance includes the reinvestment of all dividends, interest, and capital gains.
The fee schedule for the Investment Manager includes a 1.5% annual management fee and a 20%
incentive fee allocation. For periods prior to June 1, 2004 and after July 1, 2012, the Investment
Managers fee schedule included a 1% annual management fee and a 20% incentive fee allocation. In
practice, the incentive fee is earned on an annual, not monthly, basis or upon a withdrawal from the
Fund. Because some investors may have different fee arrangements and depending on the timing of a
specific investment, net performance for an individual investor may vary from the net performance as
stated herein.
The return of the S&P 500 and other indices are included in the presentation. The volatility of these
indices may be materially different from the volatility in the Fund. In addition, the Funds holdings differ
significantly from the securities that comprise the indices. The indices have not been selected to represent
appropriate benchmarks to compare an investors performance, but rather are disclosed to allow for
comparison of the investors performance to that of certain well-known and widely recognized indices.
You cannot invest directly in these indices.
This document is confidential and may not be distributed without the consent of the Investment Manager
and does not constitute an offer to sell or the solicitation of an offer to purchase any security or
investment product. Any such offer or solicitation may only be made by means of delivery of an approved
confidential offering memorandum.

-5-