If You Question Medifast’s Revenue Accounting, Expect a Subpoena Rather Than a Rebuttal

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Back to the adventures of Sam Antar in his mission to share his concerns about Medifast’s accounting to the SEC. If you believe his motives are not pure poison, then, as the old saying goes, "no good deed goes unpunished." – Ilene

If You Question Medifast’s Revenue Accounting, Expect a Subpoena Rather Than a Rebuttal

Courtesy of Sam Antar, White Collar Fraud 

Rather than respond to my Open Letters to the Securities and Exchnage Commission raising serious questions about Medifast’s (NYSE: MED) compliance with Generally Accepted Accounting Principles (GAAP) and SEC Topic 13 governing revenue recognition, the company has decided to subpoena me as a third party witness in its ongoing litigation with Fraud Discovery Institute, co-founded by convicted felon turned successful fraud buster Barry Minkow.

Starting in January 2009, Fraud Discovery Institute released a series of detailed investigative reports alleging potentially serious improprieties concerning Medifast’s business model, marketing practices, and financial disclosures to investors in reports filed with the SEC. In addition, Barry Minkow openly disclosed that he has held a short position in Medifast securities, hoping to profit from the decline in the company’s stock price (perfectly legal).

In February 2010, Medifast 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. The defendants have since filed, what is known as, Anti-Slapp motions claiming that Medifast is attempting to limit their First Amendment right of free speech under the United States Constitution. 

Back in 2007, Fraud Discovery alleged fraud at Usana (NYSE: USNA) and the company sued Minkow for libel. All the libel counts were thrown out by a federal judge who then ordered Usana to pay Minkow’s legal fees. Likewise, the defendants are confident that Medifast’s lawsuit will be dismissed, too.

Rather than provide any detailed rebuttal of Fraud Discovery’s allegations, Medifast CEO Michael C McDevitt has resorted to personal attacks against Minkow:

We believe most everything he says to be false and made for his own personal gain. He is a liar and can’t be trusted.

Other than say that Fraud Discovery’s allegations are false in its lawsuit and the press, Medifast has yet to provide a detailed line-by-line rebuttal of any allegation made in Minkow’s reports. Minkow has asked for such a rebuttal and offered to correct any possible errors. What’s Medifast afraid of?

Instead, Medifast has complained…