Open Memo to Medifast Board Chairman Bradley T. MacDonald and Chief Executive and CFO Michael S. McDevitt: Grow Some Hair on Your Chest
To Bradley T. MacDonald and Michael S. McDevitt:
You both need to grow some hair on your chests and stop acting like whining cry babies to investors, securities regulators, and now, the federal courts. Yesterday, Medifast (NYSE: MED) and Bradley T. MacDonald filed a multi-million dollar lawsuit alleging defamation by Fraud Discovery Institute, its co-founder Barry Minkow, pyramid scheme expert Robert L. FitzPatrick, acclaimed forensic accountant and book author Tracy Coenen, best-selling author and former investigative journalist William Lobdell (who now writes for iBusiness Reporting, a blog funded by Fraud Discovery), and an anonymous Yahoo massage board poster (download lawsuit here and here).
Like your complaints to investors and securities regulators, your lawsuit fails to provide a detailed and credible substantive line-by-line rebuttal of serious allegations of improprieties concerning Medifast's business model, marketing practices, and financial disclosures made in reports issued by Fraud Discovery Institute, co-founded by convicted felon turned fraud fighter Barry Minkow.
Instead, the lawsuit reads like a cheaply produced late-night infomercial for insomniacs, rambles about the purported "health" benefits of Medifast products, and rants that Fraud Discovery Institute's reports are false. To support your claims of defamation, the lawsuit refers to self-serving claims on Medifast's website and disclosures in SEC filings which certain Defendants allege are false and misleading.
The lawsuit alleges that Barry Minkow orchestrated an illegal scheme to drive down the stock price of Medifast shares to profit from short selling. However, Minkow has a first amendment right to critique or to use your words "bash" Medifast, notwithstanding the fact that he publicly disclosed that he holds a short position in your company and is a convicted felon. Minkow's opinion and analysis is backed up by very detailed reports prepared for Fraud Discovery Institute by Mr. FitzPatrick and other data made fully available to the public for examination and scrutiny.
The Defendants will certainly assert "truth" as a defense to claims of defamation made against them in this lawsuit. That same kind of truth led a federal Judge in Utah to dismiss Usana's (NASDAQ: USNA) frivolous defamation claims against Fraud Discovery and Barry Minkow and award them legal fees covering their Court costs.
I remind you that discovery in civil litigation is a two-way street. Minkow and the other Defendants can now subpoena all of Medifast's books, records, and documents and closely scrutinize them to look for any possible improprieties and irregularities in defending themselves in this litigation. In addition, they can subpoena documents from Medifast's auditors, vendors, customers, and other business relationships. You and others will be subject to sharp questioning under oath in pre-trial depositions by the Defendant's attorneys. Now Medifast's business documents will ultimately become subject to close public examination and careful scrutiny if this case goes to trial.
I doubt that Minkow and the other Defendants are concerned about Medifast subpoenaing their documents and taking their sworn testimony. In any case, it will be interesting to see if Medifast is afraid to be transparent and moves for a protective order to quash any public examination and scrutiny of discovery information obtained by Minkow and the other Defendants.
One more thing, Medifast and MacDonald are suing an anonymous Yahoo message board poster known as "Medisdead" claiming for example, that:
Medisdead has defamed MacDonald by referring to him as "Pimp Daddy Brad."
You guys need to develop a "thick skin" rather than waste your time on message board postings. Some of your anonymous message board supporters have made anti-Semitic attacks and other libelous personal attacks on me and Minkow. Unlike you, Minkow and I are not complaining about them. At this time, we certainly don't blame you for such attacks, though some of those persons may be in contact with certain Medifast employees and/or business associates.
Instead of growing hair on your chests, it seems that you've chosen the route of premature baldness and grey hair. Regarding Medifast and certain of its business associates, I believe that this litigation will be disproportionately more time consuming, distracting, costly, and far more risky as compared to the Defendants in this legal action. You never know what kind of potential future trouble that a "needle in a hay stack" found in discovery by the Defendants can cause for Medifast and certain of its business relationships.
For a personal reference about me, just ask Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne. Recently, Overstock.com was forced to eat crow by admitting to GAAP violations exposed in my blog and reported to the Securities and Exchange Commission. The company was forced to restate its financial reports for the third time in three years to correct those GAAP violations and is currently under SEC investigation as a direct result of reporting in my blog.
To borrow a quote from my dear friend Barry Minkow, similar efforts by other companies like Overstock.com and now Medifast to try to intimidate and silence their critics have been "tried and tossed."
Sam E. Antar
...I have no opinion on Medifast except that a suit like this is just plain stupid. All it is going to accomplish is to disseminate Minkow's claims to people like myself who don't follow such things and ordinarily couldn't care less.
Update - The Defendants Respond:
The Fraud Discovery Institute, Inc. announced today in a response to a lawsuit filed recently inSan Diego federal court by Medifast, Inc (NYSE:MED) on Wednesday, February 17th, 2010 thatthe company is reopening their investigation of Medifast, Inc and will zealously continue torelease accurate and truthful information about the company. “This is a case study in a muchbigger picture,” said Barry Minkow, Co-Founder of the Fraud Discovery Institute, Inc.“The conspiratorial approach utilized by public companies like Medifast, Inc. needs to be seenfor what it is—an all-out attack using threat and intimidation designed solely to silence anyonefrom speaking critically about their business model, their compensation plan or their alleged misrepresentations.”
The complaint filed by Medifast contains pages of self-praise, along with attacks on the character of those involved in the investigation of the company. In one example of the attacks, Medifast falsely refers to multi-level marketing expert Robert FitzPatrick as “… a self-claimed expert in pyramid schemes.” A brief look at FitzPatrick’s work clearly shows he’s not a “self-claimed” expert on pyramid schemes. In fact, regulators around the world have utilized his expertise. The Federal Trade Commission has received training from him. FitzPatrick has also testified in state and federal courts as an expert witness on pyramid schemes.
At the original time of this blog post, Minkow and the other defendants had not yet publicly responded to this lawsuit. I've updated this open memo to include their responses and other links.
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. Barry Minkow and I are close personal friends. From time-to-time, I do research on scam companies for Fraud Discovery Institute. However, this open memo, like my previous open memo, is an unsolicited freebie. In any case, please feel free to subpoena me and otherwise complain about me, too. See if I care.
I do not own Overstock.com securities short or long. My research on Overstock.com and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway. I will probably end up joining corporate miscreants such as Patrick Byrne in hell.
Analyzing Overstock.com's financial reporting is a forensic accountant's wet dream and Patrick Byrne is about to become the SEC's new orgasm.
I do not own Usana securities short or long.
A few years ago, I helped fund Fraud Discovery Institute's investigations, including Usana.