Skip to main content

Open Memo to Medifast Chief Executive and CFO Michael S. McDevitt: Cut the BS and Address Troubling Issues Raised by Barry Minkow

See update at bottom of blog post

Open Memo to Medifast Chief Executive and CFO Michael S. McDevitt:

I read Medifast’s (NYSE: MED) self-serving proclamations attacking my friend convicted felon turned fraud fighter Barry Minkow (co-founder of Fraud Discovery Institute or FDI) in both its Q3 2009 10-Q issued last November and reiterated in today’s press release detailed in part below:

An Independent Committee composed of distinguished members of the Board of Directors of Medifast, Inc. (NYSE: MED) was constituted in February, 2009 to review public allegations of a third party, convicted felon Barry Minkow, and his network of alleged independent experts, posted on Minkow's website alleging illegal activities of Take Shape For Life, Inc., a direct selling company and a subsidiary of Medifast, Inc.

The independent Directors' Committee, after investigation of facts and information concluded the allegations were false, misleading, and/or without merit. The same is true for the re-issue of the report posted January 8, 2010 – the allegations are false, misleading, and/or without merit.

The company has made a formal complaint to the United States Securities and Exchange Commission and the Maryland Securities Commissioner.

Note: I added links to Fraud Discovery's web site and reports for clarity.

While Medifast's so-called “independent” directors may meet the legal tests of independence under New York Stock Exchange rules as you claim, they are certainly less independent than Bagell, Josephs, Levine & Company, the company's so-called independent auditors. Each director holds stock or stock options in Medifast, unlike the company's auditors who cannot own stock in an audit client (Source: Medifast Proxy Statement dated August 25, 2009). In any case, your auditors seem to have their own share of independence and competency issues, too (detailed here).

However, Medifast is attempting in smear Barry Minkow because he has publicly disclosed that he is a short seller and his company Fraud Discovery Institute has issued various reports raising serious issues about Medifast's questionable financial disclosures, business model, and marketing practices backed up with an outside expert's report and other data made fully available to the public for examination. According to Fraud Discovery's recent rebuttal:

According to FDI Co-Founder Barry Minkow, “there is only one problem with the above statement. Neither FDI nor myself made the detailed allegations in previous reports released on the official FDI website. On the contrary, FDI sought the outside opinion of nationally recognized, multi-level marketing expert Robert Fitzpatrick, who has testified for law enforcement on numerous occasions about these kinds of schemes. Mr. Fitzpatrick is not a short-seller and has never had a financial interest in Medifast’s stock at any time nor would Mr. Fitzpatrick, for the nominal fee paid for his analysis of the Medifast business model, make up out of thin air the specific problems inherent with the company.

In contrast, Medifast has utterly failed to issue any detailed line-by-line rebuttal of any issues raised in Fraud Discovery Institute's reports concerning the company. Simply disclosing that Medifast issued a “formal complaint to securities regulators” without issuing a detailed public rebuttal of FDI's reports seems like an attempt to scare off Minkow with threats of a government investigation, rather than transparently address the serious issues raised in those reports. In addition, I remind you that Barry Minkow has a first amendment right to critique your company, notwithstanding the fact that he publicly disclosed that he holds a short position in your company and is a convicted felon.

Back in November 2008, Medifast claimed that it made a “formal complaint to the United States Securities and Exchange Commission and the Maryland Securities Commissioner.” However, Barry Minkow informs me that he has not been contacted by either regulator regarding your formal complaints.

I can assure you that Barry Minkow would welcome scrutiny from any regulator along with their concurrent scrutiny of Medifast’s questionable financial disclosures, business model, and marketing practices. Minkow is unafraid to defend FDI's detailed case that your company is a scam preying on the hopes and dreams of thousands of unsuspecting gullible people who buy into your multi-level marketing scheme, never to collect any net profits on their investments.

Here’s a suggestion. Why don’t you publicly debate Barry Minkow in front of TV cameras (without lawyers to sanitize your communications) about the issues raised in his reports? In other words, cut the BS and show some balls: put up or shut up.


Sam E. Antar

Leading securities litigation law firm Barack, Rodos, & Bacine announced that it is investigating Medifast's financial disclosures for possible violations of federal securities law as a result of reports issued by Fraud Discovery Institute. Read the press release here.

Suggested reading:

Fraud Files Blog: Medifast multi-level marketing scheme called into question by expert


I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do not own Medifast securities short or long. From time-to-time, I do research on scam companies for Fraud Discovery Institute. However, this open letter is an unsolicited freebie. In any case, please feel free to add my name to any allegations you make to securities regulators and see if I give a damn.


Popular Posts

Did a Clever SEC Bait Goldman Sachs into Compounding Its Legal Problems With the "Kiss of Death" Message?

Updated: At 3:48 AM ET 04/20/2010 on bottom

The Kiss of Death

In filing its lawsuit against Goldman Sachs (NYSE: GS) on a Friday, the Securities and Exchange Commission sent what I call the "kiss of death" message to the embattled company. In other words, the SEC wanted to stick it to Goldman Sachs and Fabrice Tourre, the Executive Director of Goldman Sachs International, who is also a defendant in the complaint. While the SEC as a practice does inform target companies and individuals of an impending enforcement action, it does not always tell them exactly when such an action will be filed.

Apparently, the SEC filed its lawsuit without giving Goldman Sachs the heads up that it was planning to file it that day. Business Insider observed that Goldman Sachs was clearly unprepared to respond to the complaint as news of the lawsuit dominated the headlines all day. Goldman issued a short denial around noon and issued an extensive denial late in the afternoon, after most people had … CEO Patrick Byrne Sleeps With a Gun

In numerous blog posts in the past, and in widespread media coverage, evidence has accumulated for years that CEO (NASDAQ: OSTK) Patrick Byrne has shown signs of being mentally unbalanced and paranoid.

Byrne has blamed his company's financial woes on an unnamed "Sith Lord." He hired paid goons to stalk his real and imagined adversaries and to write lengthy conspiracy theories on the Internet. Byrne has close ties with Bo Gritz. The Anti-Defamation League lists Bo Gritz as a far-right extremist with “extensive connections to both white supremacists and anti-government groups and leaders.”

Patrick Byrne's infamous temper tantrums when he doesn’t get want he wants are well documented too. He made obscene and misogynistic comments to a female reporter. He suggested that she gave “blowjobs” to Goldman Sachs traders. He suggested that a male reporter “Sucks It Likes He’s Paying the Rent.” An independent research analyst was told that “You deserve to be whippe…

Nature's Sunshine Products, Willbros Group, Cal Dive International, and BSQUARE Violate S.E.C. Rules on Calculating EBITDA

Nature’s Sunshine Products (NASDAQ: NATR), Willbros Group (NYSE: WG), Cal Dive International (NYSE: DVR), and BSQUARE (NASDAQ: BSQR) have recently issued earnings reports which include a calculation of EBITDA (earnings before interest, taxes, depreciation, and amortization) that apparently does not comply with Securities and Exchange Commission interpretations for Regulation G governing such non-GAAP financial measures. In each case, their erroneous EBITDA calculations have enabled them to significantly distort their financial performance by erroneously reporting a positive EBITDA, when they should have reported a negative EBITDA in the latest quarter.

How EBITDA is supposed to be calculated under Regulation G

According to the S.E.C. Compliance & Disclosure Interpretations, EBITDA is defined under Regulation G as net income (not operating income) before net interest, taxes, depreciation, and amortization. See below:

Question 103.01Question: Exchange Act Release No. 47226 describes E…

InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme

In this blog post, I will provide evidence of what I believe is a stock market manipulation scheme involving InterOil (NYSE: IOC), John Thomas Financial, and Clarion Finanz AG. I believe that InterOil with the assistance of Clarion Finanz concealed John Thomas Financial’s involvement in helping it raise $95 million through a private placement of convertible debt securities.

Clarion Finanz acted as a buffer between InterOil and John Thomas Financial to help InterOil hide John Thomas Financial's role in raising funds. Afterwards, InterOil filed false and misleading reports with the Securities and Exchange Commission in an effort to conceal John Thomas Financial’s role in helping the company raise $95 million in convertible debt.

Carl Caserta, who in 1991 was barred by the Securities and Exchange Commission from “association with any broker, dealer, or investment advisor” played a role in helping InterOil use John Thomas Financial to obtain funds from investors. InterOil, John Thoma…

Class Action Complaint against Amedisys uses Sarbanes-Oxley Act Corporate Governance Provisions to Battle Alleged Corporate Malfeasance

Updated at bottom of article

Last week, Pomerantz Haudek Grossman & Gross LLP filed a class action lawsuit against Amedisys (NASDAQ: AMED) charging the company, its CEO William F. Borne and its CFO Dale E. Redman with securities fraud.  In the next few days, Bernstein Liebhard LLP and Finkelstein Thompson LLP filed similar class action lawsuits against the company. The lawsuits allege that Amedisys abused Medicare's reimbursement system for at-home therapy care based on a compelling analysis of company revenues in an April 27 Wall Street Journal article.

In addition, the lawsuits innovatively utilize a provision under Section 406 of the Sarbanes-Oxley Act 2002 which provides a back-door way for investors to force ethical corporate governance and sue public companies for malfeasance. That provision requires Senior Financial Officers, such as the CEO and CFO of public companies, to abide by a strict code of ethics which broadly defines corporate malfeasance and effectively makes…