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.

Last week Barry Minkow and Fraud Discovery Institute released a report regarding the independence of the auditors of Medifast Inc. (NYSE:MED). The company is audited by Bagell, Josephs, Levine & Company. The audit partner happens to also be a part of BJL Wealth Management, an investment firm with the same address as the audit firm.

This becomes interesting when you consider that BJL Wealth Mangement recommended the purchase of Medifast stock to an operative of FDI. Is this a conflict of interest? It may be. Does the audit partner, in his role at the investment firm, make recommendations regarding Medifast stock? Does he have any financial interest in transactions invovling Medifast stock? If the answer to either of these questions is yes, then the audit partner would have compromised his independence.

An auditor working in the capacity of an investment advisor does not automatically give rise to independence issues. In fact, over the last ten years, the accounting powers that be were recommending that CPAs get involved in selling investments to generate additional revenue in their practices. However, when conducting an audit, the CPA has to draw a very clear line and not make recommendations regarding the buying or selling of securities of an audit client. The CPA also must not have any financial interest in the buying or selling of that stock. (i.e. He can’t receive any income from the sale of securities of an audit client, even if it was someone else in the investment firm making the sale or recommendation.)

Another interesting factoid uncovered by FDI … The PCAOB inspected six audits done by Bagell, Josephs, Levine, and found signficant audit deficiencies in HALF of them. That’s a pretty bad hit rate.

Interesting links:

FDI’s website detailing its investigation of Medifast – http://www.medifraud.net
Sam Antar suggests Medifast should change auditors – http://whitecollarfraud.blogspot.com/2009/06/compelling-reasons-for-medifast-to.html
Bagell, Josephs & Levine & Company – http://bagelljosephs.com/abt_partners.html
BJL Wealth Management – http://bjlwealth.com/new/bjlwealth/gate.asp


  1. Davis Freeberg 06/24/2009 at 11:47 am

    If this is true, it’s a pretty big deal. How are public shareholders supposed to have confidence in the numbers when the auditors have a financial incentive to make sure that things appear rosy. Was this conflict at least disclosed in their 10-K filings or is this something that they’ve been trying to keep quiet?

  2. Medifast Blog 09/04/2009 at 8:59 pm

    if it is a solid investment, if the company in question was some other company other than medifast and BJL would make the same recomendation, then i dont see any conflict of interest. but if it was other way around, then there is something to think about

  3. […] were questions about Medifast’s auditors,  but most notably, the company was criticized for the fact that its financial growth was due […]

  4. […] claims that I stated in an article on my blog that BJL Wealth Management recommending the purchase of Medifast stock to an FDI operative […]

  5. […] Wealth Management, a company that apparently has some principals in common with the auditing firm. In this post, I discussed what would constitute a conflict of interest for the auditors and what wo…I did not give an opinion on the situation with Medifast, and Bagell, Josephs, Levine, but that did […]

  6. Sequence Inc. Fraud Files Blog 03/29/2011 at 3:42 pm

    […] at the same address as the auditor) recommended the purchase of Medifast stock to someone. In fact, I detailed in my blog posting only what would and would not constitute a conflict of interest, and I did not give a conclusion on the Medifast […]

  7. Fraud Files Blog 10/25/2012 at 6:01 am

    […] Similarly, Coenen re-posted allegations made by Minkow without factchecking. When writing her post on Medifast’s outside auditor and stating definitively that a person who worked at the wealth management division of the auditor […]

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