Medifast's Lawsuit Backfires

May 20, 2010 5:01 AM ETMED, GS, SPNG-OLD19 Comments
Sam E. Antar profile picture
Sam E. Antar

If Medifast (NYSE: MED) thought that a lawsuit and complaints to the Securities and Exchange Commission against certain critics would get them to back down and retreat from criticizing the company, they are badly mistaken. Wednesday morning, Fraud Discovery Institute co-founder Barry Minkow effectively gave Medifast the middle finger by releasing a very detailed and potentially devastating report by pyramid scheme expert Robert L. FitzPatrick detailing additional allegations of potentially serious improprieties concerning Medifast's business model, marketing practices, and financial disclosures to investors in reports filed with the SEC. (Robert L. FitzPatrick’s 18 page report can be downloaded here).

Note: Convicted felon Barry Minkow (co-founder of Fraud Discovery) has publicly disclosed holding short positions in Medifast securities. As a successful fraud investigator, Minkow has uncovered over $1.8 million of fraud involving over twenty companies and has received an official commendation from the FBI for his work in uncovering crime. Minkow and I are close personal friends and I do research work for Fraud Discovery on InterOil (IOC) and Medifast's auditors, but I do not own any securities in InterOil or Medifast, long or short.

FitzPatrick’s report alleges that Medifast has a "troubled history" of "making false and misleading claims regarding its products" and takes aim at the company's Take Shape for Life (TSFL) division, which is responsible for Medifast's recent growth in revenues and profits. Fraud Discovery's press release alleges that Medifast's TSFL division is effectively a multi-level marketing scheme involving:

... pyramid-style selling - is unsustainable and will lead to a revenue trajectory similar to other multi-level marketing companies: dizzying initial expansion followed by lackluster revenue or worse.....


Despite heady starts, revenues from multi-level marketing companies usually slow or fizzle out all together because the business model relies mostly on an endless recruitment of independent salespeople, most of whom

This article was written by

Sam E. Antar profile picture
Sam Antar is a former certified public accountant and convicted felon who played a key role in one of the largest securities frauds of the 1980s as the chief financial officer of Crazy Eddie, a consumer electronics chain in the Northeastern United States. In subsequent years, Sam Antar worked as a forensic accountant focused on identifying and investigating public companies engaged in securities fraud. He advised law enforcement agencies and professionals about white-collar crime and trained them to catch the crooks. His clients included government agencies, law firms, accounting firms, independent investment research firms, hedge funds, public companies, and other organizations.

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