Financial Statement Fraud: How It Is Done

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Financial statement fraud happens is one of the most costly types of fraud. It is a significant problem because people inside and outside the company rely on the information provided in the financial statements. They assess the financial results and make predictions and decisions about the future of the company based on those results.

Upper management or company owners are the ones who are usually responsible for financial statement fraud. Executives are entrusted with entire companies. They have access to nearly all data and employees, and they can exploit this access to commit and conceal fraud.

The power the executive has by virtue of her or his position in the company is closely linked with the high cost of financial statement fraud. Power and access within a company make it possible for larger frauds to be committed and covered up. Continue reading

Medifast Continues to Mislead Shareholders

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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.

This week multi-level marketing expert Robert Fitzpatrick released his second report in the last year on Medifast (NYSE: MED) and their Take Shape For Life multi-level marketing division. The report highlights how little money the company’s “health coaches” actually earn from selling the products, and makes it clear that the real money (if there is any) is in recruiting new marks into the scheme.

Following the release of FitzPatrick’s first report last year, Medifast management came out with bizarre statements. The most recent version of their statement was included in a 10-Q filed with the Securities and Exchange Commission on November 9, 2009: Continue reading