(Adds Whitney Tilson comments, latest volume, details on options activity)

NEW YORK, March 2 (Reuters) — Shares of Lumber Liquidators Holdings Inc were down more than 20 percent on Monday after the CBS news program 60 Minutes said its products failed to meet safety standards, allegations the hardwood flooring retailer denied.

The shares were halted for much of the morning but dropped sharply once they resumed trading. They were last down 22.8 percent at $40.05 on volume of more than 21 million shares, the highest ever for a single session. The stock was one of the most active on the New York Stock Exchange.

While Lumber Liquidators has been under pressure since 2013, new concerns about its business emerged after 60 Minutes said on Sunday that the company sold flooring with higher levels of formaldehyde than permitted under California’s health and safety standards.

In a statement, Lumber Liquidators said 60 Minutes had used an improper test in its report and that its suppliers in China had confirmed that the product complied with all regulations.

The company had previously said the allegations were driven by a small group of short-selling investors who are working together for the sole purpose of making money by lowering our stock price.

Short interest on the company has spiked. The percentage of Lumber Liquidators stock available for shorting and being used for short bets is about 30 percent, according to Markit. That is up from about 10 percent in July.

Kase Capital Managing Director Whitney Tilson said on CNBC that he would short the stock right now if he could, but was told there was no stock left to short. He is short 44,676 shares, according to CNBC.

It’s the perfect short now, with fundamentals continuing to deteriorate and the stock still expensive, Tilson said.

The 60 Minutes report spurred Morgan Stanley to downgrade the stock to equal weight from overweight and to remove its $85 price target.

The stock outcomes seem binary from here with legal risk and potential sales fallout from negative press representing the downside, the firm wrote in a note to clients. The upside is if legal risk is minimal and the media scrutiny turns out to be overblown, resulting in little to no financial fallout.

The 60 Minutes report comes days after the company said the U.S. Department of Justice might seek criminal charges against it under a law aimed at curbing illegal harvest of tropical hardwoods.

That news sparked a one-day drop of almost 25 percent in the stock, extending the weakness that has persisted since 2013, when federal authorities first issued search warrants against some of the company’s offices. It is down more than 66 percent from a record close in November of that year.

Activity in Lumber Liquidators’ options on Monday showed signs of an increase in bearish bets, and puts betting on the shares dropping below $35 by March 20 were the busiest, with volume of more than 10,000 contracts.

A bulk of the activity was concentrated in options expiring in March, which might mean that investors are expecting a swift conclusion to the allegation, Andrew Wilkinson, chief market analyst at U.S. electronic broker Interactive Brokers LLC, said in a note. (Additional reporting by Caroline Valetkevitch and Saqib Ahmed; Editing by Nick Zieminski and Lisa Von Ahn)