Some multi-level marketing (MLM) companies release income disclosures or earnings disclosures. These documents theoretically provide insight into how much distributors earn in commissions or overrides.

However, the disclosures are generally worthless. What is more important than the information in these documents? The information that is not disclosed in the documents.

Multilevel marketing companies purposely omit important information that would allow potential distributors or investors to have real insight into these plans.

A recent filing in the Medifast appeal (the case in which Medifast sued me and others, and lost miserably) raises some interesting questions about whether Take Shape For Life (TSFL) is an endless chain recruitment scheme. From that filing:

A. Medifast’s Evidence Does Not Prima Facie Show That FitzPatrick’s “Endless Chain” Statement is Provably False

Medifast’s reply again does not demonstrate that FitzPatrick’s endless-chain statement is false. Because Medifast has alleged libel, it must make a prima facie showing that challenged statements are untrue. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 516 (1991). Courts also evaluate whether an average reader would consider the statement to be fact or protected opinion. Carver v. Bonds, 135 Cal.App.4th 328, 344 (2005).

Popehat points us to a nice victory by SOCNET in a lawsuit filed by John Giduck, the man who claims he was defamed when a SOCNET user stated that he was fraudulently posing as a Special Forces veteran.

The court granted SOCNET’s motion to dismiss (even with no anti-SLAPP statute in Colorado), saying:

It is this tension that has generated numerous cases addressing the first element of a defamation action, i.e. is the statement defamatory. Not every untrue, uncomplimentary or offensive statement concerning an individual is defamatory.

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.

A couple of months ago, a ruling on an anti-SLAPP motion in a defamation case against Gawker Media (owner of website Gizmodo) got my attention. Scott Redmond, with his service called Peep Telephony (or Peep Wireless), was upset because Gizmodo posted a negative review of the service. More specifically, Gizmodo called the service a scam, saying that it offers “free” cellular service for phone calls, texts, and data access. A look at Peep’s website produced this criticism:

To be frank, this all sounds like bullshit. In fact, the combination of everything described was so strange, it almost made the company seem like a larger-than-life prank on the tech world. The closest thing to a technical explanation for Peep is this:

For decades, muti-level marketing companies like Amway, Mary Kay, Herbalife, Avon, and Usana have fought against being labeled as pyramid schemes. They say that pyramid schemes are illegal, and that their MLM business format is perfectly legal.

My definition of MLMs is a little nuanced. I tend to call them legalized pyramid schemes. What I mean by this is that multi-level marketing companies are indeed pyramid schemes, but our state and federal governments allow them to operate and generally call them legal if they have the right window dressing.

The heat has been on multi-level marketing companies lately, most notably Mary Kay Cosmetics, the focus of Virginia Sole-Smith’s article on the pink pyramid scheme.

One of the common defenses of multi-level marketing is that it is a legitimate business method that has been around for a long time. I’ve also been told that if it was illegal, it would have been shut down. Neither the length of existence nor the lack of law enforcement action means something is legitimate or not a fraud. Remember Enron? Remember Bernie Madoff? These and others have been in business for a long time, and turned out to be complete frauds.

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.

Yesterday my attorneys filed my response to the appeal in the lawsuit brought against me by Medifast, Inc. for my non-defamatory writings about the company and its Take Shape For Life multi-level marketing business. Medifast sued me on February 17, 2010, lied repeatedly to the court about my writings leading up to the lawsuit, and ultimately the judge dismissed me from the lawsuit on March 29, 2011.

You can read an important filing related to our anti-SLAPP motion here, which details what did and did not happen prior to the lawsuit. Medifast is appealing my dismissal from the lawsuit. Below is our response to Medifast’s appeal, and a pdf of the filing is found here.

My favorite quote from the brief: “Medifast claims that Coenen published false information, but it is Medifast that continues to make false accusations against Coenen.”

More than a year ago, Medifast Inc. (NYSE:MED) sued me, my company Sequence Inc, Barry Minkow, his company Fraud Discovery Institute, Robert FitzPatrick, William Lobdell, and an anonymous message board poster for defamation. Barry Minkow and FDI initiated an investigation of the company in 2008, and the rest of us researched the company and contributed our opinions to FDI’s reports on the company and its multi-level marketing division Take Shape For Life (TSFL).

We criticized the company and its MLM business model. We expressed negative opinions about the disclosures Medifast makes about this “business opportunity.” I dared to suggest that Medifast might be a weight loss pyramid scheme.

A year after the first report on the company was released by FDI, Medifast sued us for $270 million, alleging defamation, criminal conspiracy, unfair business practices, and market manipulation. The defendants each filed anti-SLAPP motions, basically saying that Medifast was attempting to silence critics in violation of our First Amendment rights.