Fraud Discovery Institute Ends Investigation of Medifast Inc.

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UPDATE: On February 17, 2010, Medifast Inc. filed suit in US District Court, Southern District of California, alleging defamation, violation of California Corporations Code, and unfair business practices. On March 29, 2011, Judge Janis Sammartino dismissed all of Medifast’s claims against me in her ruling on my anti-SLAPP motion.

In mid-2009, Barry Minkow and Fraud Discovery Institute began investigating Medifast Inc. (NYSE:MED), and published several reports on the company and its business model. The company was compared to Your Travel Biz (YTB), a company that was under fire from the authorities for being an alleged pyramid scheme.

There were questions about Medifast’s auditors,  but most notably, the company was criticized for the fact that its financial growth was due almost completely to the recruitment of new “coaches” into its Take Shape for Life (TSFL) division. A month ago, the most recent report on Medifast’s recruitment business was published by multi-level marketing expert Robert FitzPatrick, and Medifast’s management promptly misled shareholders by claiming these allegations were made by “convicted felon” Barry Minkow.

Yesterday FDI announced it is ending its investigation of Medifast. FDI has made it clear that the company has had no contact or affiliation with the class action law firm of Barrack, Rodos & Bacine, and was not aware of any lawsuits the firm had filed or was planning on filing. Simply put, FDI doesn’t work with class action law firms to coordinate the release of any information resulting from FDI’s investigations.

Why is FDI dropping the investigation of Medifast?

“We are a small firm with limited resources and must make decisions regarding the allocation of those resources,” said Barry Minkow, co-founder of the Fraud Discovery Institute Inc. “This means that some of our investigations must end in order to maintain quality control and continued investigative impact.”

“Companies like Lennar, Inc. (NYSE:LEN), InterOil Inc. (NYSE:IOC) and PrePaid Legal Inc. (NYSE:PPD) continue to expand and require a significant amount of our time, energy and capital but are worthy of the sacrifice and the commitment,” added Minkow.

Have no fear… Barry Minkow and FDI have no intention of stopping their investigations of companies that they believe are committing financial crimes.

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