This little gem is courtesy of Shortzilla, a Seeking Alpha contributor. In a 1986 Final Judgment and Permanent Injunction against Herbalife in California, the company agreed to the following:
B. defendants shall be in compliance with this Section 5, as long as a verification or documentation system they implement allows them, at any given point in time, to verify or: document to plaintiffs that any and all participants who receive commissions, bonuses, overrides and/or advancement from defendants in defendants marketing program, after entry of this judgment, are based on retail sales made by or through such participant(s) or others introduced directly or indirectly under participant(s). Continue reading
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 the never-ending saga of Medifast Inc’s $270 million lawsuit against me for defamation related to their Take Shape for Life division (TSFL), the company and its lawyers have repeatedly lied to the court about what I have said, written, and done. Apparently, this is the only way they think they might win their case. Thankfully, the judge saw through their lies and dismissed me from the case under California’s anti-SLAPP legislation.
That hasn’t stopped Medifast from continuing the lies, however. And the company appears to be upset over my writings about the lawsuit. Management and the attorneys have falsely stated that I am writing about this case to get publicity for myself. The truth is that I write about this case to expose the lies and shady litigation procedure employed by the company.
I do not believe a company like Medifast should be allowed to commit these acts in the dark of night. I want to expose management and the attorneys for the liars that they are, so the whole world can see it. Continue reading
In the current issue of Forbes magazine, accounting watchdog Francine McKenna has written an article about the SEC’s failure to take a hard line on accounting fraud in public companies. Despite all of the high profile accounting frauds uncovered in the past decade, the Securities & Exchange Commission appears to be focusing its efforts on going after Ponzi schemes rather than accounting fraud. Francine reports that of the 735 enforcement actions brought by the SEC in 2011, only 89 were related to fraudulent or misleading accounting and disclosures by public companies.
Some people say that Sarbanes Oxley has been doing its job relative to increasing prevention and detection of accounting fraud, but evidence of that is almost non-existent. Auditors would have the public believe that auditors are being more effective in finding and reporting fraud, but the evidence does not back this up. Continue reading
Sam Antar, former CFO of Crazy Eddie (massive fraud in the 1980’s) has been systematically uncovering fraud at Green Mountain Coffee Roasters (NASDAQ: GMCR) for years. In spite of this, investors continue to run up the price of the stock, believing the hype and the numbers put out by management.
Yesterday, Sam exposed even more about the potential fraud, targeting suspected inventory manipulation that could fraudulently inflate GCMR’s earnings. The overstatement of inventory improperly inflates earnings, and Sam surmises that Green Mountain may be doing exactly that. Continue reading
Questions posed to Herbalife earlier this year by David Einhorn sent the stock price down quickly. Einhorn simply wanted to know about customers… actual consumers of the Herbalife products.
One has to assume Einhorn has done lots of research on multi-level marketing. And he knows the real deal. Herbalife’s customers are the distributors. Corporate doesn’t care much if the products get to a real customer after that. They’ve already made their sale and collected their money.
Multi-level marketing has very little to do with selling the product, and relies almost exclusively on continual recruitment of new distributors. But the product is important to make the MLMs not look like pure pyramid schemes. Continue reading
In March, the Federal Trade Commission entered an order against multi-level marketing company BurnLounge, prohibiting the company and its founders from making certain misrepresentation and requiring them to disclose certain things in the future. Over the last few months, the heat has been on Herbalife, after short seller David Einhorn asked some important questions on a conference call. (Don’t let HLF tell you the questions were elementary or not important. They are very important.)
There is no doubt that Herbalife has had much financial success over the years. It is the largest publicly traded MLM, and its stock price has increased greatly since 2007. But are there things to be worried about? If you know something about multilevel marketing, the answer is YES. Continue reading
Two weeks ago the big news was Herbalife’s earnings call, and questions asked by David Einhorn. Stephen Gandel, senior editor at Fortune Magazine wrote a great article on the Herbalife questions and their significance. I was quoted relative to the issues of distributors and recruiting:
It’s not clear Einhorn has already placed his bets against Herbalife, but it seems likely he would do so before tipping his hand, even slightly. Einhorn only asked three questions on the conference call, so it’s not clear why he thinks the company’s shares will fall. But Tracy Coenen, a forensic accountant, who has been following Herbalife for a few years, says that from Einhorn’s questions it appears he is concerned about Herbalife’s growth. Continue reading
This week, response briefs were due from the defendants in the case of Medifast v. Barry Minkow, Fraud Discovery Institute, Robert FitzPatrick, Tracy Coenen, and Sequence Inc. I was dismissed from Medifast’s SLAPP suit (see information on the lawsuit here), and my brief in the Medifast appeal can be found here. The brief of Minkow and Bob FitzPatrick was also filed this week, and sheds some light on the allegations that Take Shape For Life (TSFL) and Medifast are offering a pyramid scheme to distributors (called “health coaches”).
The entire brief filed on behalf of Minkow, FDI, and FitzPatrick is found here (10MB file). Below I highlight some of the most relevant (and most interesting) portions, particularly the bits regarding the allegations that Medifast’s multi-level marketing business is a pyramid scheme or endless chain recruitment scheme. Continue reading
Sam Antar, former CFO of Crazy Eddie, a massive fraud in the 1980s, has been following Green Mountain Coffee Roasters (GMCR) for a long time. He has pointed out red flags of fraud over and over, and the current problem is with the level of inventory. Sam has noted that the inventory of Green Mountain has grown to “toxic levels,” even when the company was beating revenue and earnings targets.
Here’s a recent interview in which Sam details the inventory issue at Green Mountain, along with a few other criticisms of management. Continue reading
Yesterday the stock of Herbalife (NYSE:HLF) dropped 20 percent when David Einhorn of Greenlight Capital began asking questions during the company’s earnings call. Herbalife is a multi-level marketing company which sells vitamins. The company describes itself:
We pursue our mission of “changing people’s lives” by providing a financially rewarding business opportunity to distributors and quality products to distributors and customers who seek a healthy lifestyle. We are one of the largest network marketing companies in the world with net sales of approximately $3.5 billion for the fiscal year ended December 31, 2011. As of December 31, 2011, we sold our products in 79 countries through a network of approximately 2.7 million independent distributors. Continue reading