Alert #188: 8/11/2011

Barry Minkow Hit with $584 Million Judgment
Five Year Prison Sentence  
Anti-MLM Critics Complicit in Fraudulent Scheme

Barry Minkow – Beneath the Iceberg

For those of you who are new to the profession of network marketing, or are experienced veterans who’ve been stranded on a deserted island the last four years, Barry Minkow started a fraudulent carpet cleaning and restoration company back in the 1980s called ZZZZ Best (pronounced Zee Best), went to prison for over seven years, found God, emerged from the Englewood Federal Correctional Institution corrected, and then turned from being a perpetrator of fraud to an investigator and exposer of it. Then, in 2006, another supposed ex-stock-fraud-felon-turned-good by the name of Sam Antar (his fraudulent company was called Crazy Eddie) paid Minkow $250,000 – $150,000 to attack Usana Health Sciences, and another $100,000 allegedly because Sam just admired Barry and wanted to give him a gift. Usana is publicly traded so, of course, both Sam and Barry bought put options on Usana right before Minkow published his 86 page Usana smear report so they could profit from the resulting drop in Usana’s share price – which plummeted 15% the day Minkow’s report went public. After banking $61,000 on his Usana puts, and watching how the media indubitably promoted his attack, and seeing how vulnerable a public M.L.M. company, or at least their stock value, was to bad publicity, he decided to try the same bash-n-cash scheme on Herbalife, PrePaid Legal, and Medifast. Each time Minkow would hire M.L.M. critics Robert FitzPatrick, who claims to be an “expert” on pyramid schemes, and Tracy Coenen, who claims to be a “forensic” CPA and “certified fraud examiner”, to assist him in the production of his stock price pounding propaganda.

Then he tried the same scheme on Lennar.

Lennar is the second largest home builder in the United States, with $3.1 billion in revenue last year. Lennar is also not an M.L.M. company, thus not nearly as vulnerable to prolonged attacks on their credibility. So, Lennar sued Minkow and his “Fraud Discovery Institute” accusing him of libel and stock fraud, and theydid not settle. And they won, thus the $584 million judgment. Along the way Minkow was also prosecuted on criminal charges that included insider trading and extortion. He lost, thus the five year prison sentence.

At one time, while Minkow was still actively bashing-and-cashing, I began the development of a website designed to expose Minkow as not having been reformed, and as still being guilty of fraudulent activity as far back as March of 2007. To that end I registered the domain name, playing off one of Barry’s favorate catch phrases, “You have to look below the iceberg”. Had anyone paid attention they would have clearly saw that what Minkow did to Lennar he had been doing to several other companies (including other non-M.L.M. companies, such as InterOil). Since Minkow’s sentencing a local news station in San Diego has uncovered other fraudulent schemes involving the church where he was the pastor and several of its parishioners (one claiming to have lost over $300,000 she lent to Minkow). All of this harm to so many of his victims, not to mention the almost $2.9 billion in losses suffered by innocent shareholder of those companies Minkow attacked, might have been avoided had fraud investigators, or at least commentators, turned their magnifying glasses around on Minkow himself rather than Minkow’s victims. Tracy Coenen, Robert FitzPatrick, Jon Taylor, Sam Antar, Gary Weiss, Michael Webster, Wesley Serra, Steve Rotolante, and so many others gratuitously and unconditionally supported and promoted Minkow’s activities every step of the way. Major news media, with far greater investigative resources that I have, incontrovertibly reported Minkow’s accusations to the public, often times interviewing Minkow personally and imparting greater credibility to him as a “reformed fraud buster”., Hugh Hewitt’s radio show, Neil Cavuto’s television show, Bloomberg, Reuters, CNN, CBS News, Fox news, and The Wall Street Journal, among others, all portrayed Minkow as a redeemed and trusted authority on recognizing and exposing fraud, which added substantially more weight to Minkow’s stock pounding hammer. Again, these are investigators who are CPAs, have post-graduate law and financial degrees, or who are trained and certified “fraud examiners”, and who, like Coenen and FitzPatrick, workeddirectly with Minkow. And all that I uncovered, with nothing more than my Associates Degree, my telephone, and Google, was always available and easily discoverable the entire time – years before it was recently uncovered in a Florida courtroom.

So that’s why I went ahead and completed, even though the heat on Minkow has pretty much melted his. It’s now more a testament to the selfish ignorance and/or gross incompetence of those who assisted Minkow and supported his agenda.

For the record, there were two groups of people who did know all along what Minkow was really up to. One are those who read, Judd Bagley’s investigative blog. The others are called MarketWave Alert subscribers!

Len Clements
Founder & CEO
MarketWave, Inc.

P.S. Please don’t forget, my (completely free) training series begins this Thursday, August 11th, at 5:30 pm PST (8:30 pm EST). Call 712-432-1000, 569-864-201#.


Alert #173: 3/25/2011

Barry Minkow Charged With Securities Fraud

Ex-Con to Plead Guilty to Charges Alert Subscribers Knew About Four Years Ago

Anti-MLM critic and so called “fraud buster” Barry Minkow, who was convicted of securities fraud in connection to his ZZZZ Best carpet cleaning business in the 1980s and served over seven years in prison, was accused today of conspiring to commit securities fraud on (non-MLM) homebuilder Lennar Corporation. This follows an earlier charge of insider trading.

Federal prosecutors are accusing Minkow of spreading false information about Lennar using online press releases, emails to the media, online videos, and his own “Fraud Discovery Institute” website between January of 2009 and April of 2010. Prosecutors believe Minkow was trying to decrease Lennar’s stock price for his own personal gain, and to compel Lennar to pay a coconspirator which had previously lost a lawsuit against Lennar. The conspirator, believed to be real estate developer Nicolas Marsch, hired Minkow to beat up on Lennar allegedly to extort a cash payment from them.

According to court documents, Minkow’s statements “alleged widespread improprieties in Lennar’s financial reporting and business structure, and attacked the personal character of Lennar’s management,” with “reckless regard for their truth.”

Lennar’s stock dropped 19.9% percent after Minkow’s first Lennar report, which was followed by 12 more public hits on Lennar, either by way of a press release, new investigative reports, or online videos. Lennar’s stock dropped after 10 of the 13 total attacks possibly costing innocent Lennar shareholders over $861 million[1].

In an earlier and separate civil action Minkow was sued by Lennar for libel and extortion and was ordered by a Florida State Court judge to pay sanctions that could amount to “hundreds of millions of dollars” for a variety of acts designed to fool or mislead the court. You can read more about this action here:

The actual order can be viewed here:

This new federal charge is a criminal action that could send Minkow back to prison for up to five years. You can read a recent news report about this action here:


Bloomberg (video):

Minkow has recently resigned as lead pastor for the San Diego based Community Bible Church. The church’s website states Minkow “has informed the church that he will plead guilty to one criminal count related to a lawsuit with which he was associated”.


Barry Minkow and his “Fraud Discovery Institute” began attacking M.L.M. companies in March of 2007. You can read the whole story in the comments section of Alert #165. Basically Minkow would hire uber-anti-MLM critics Robert FitzPatrick and Tracy Coenen to help him create smear campaigns against public M.L.M. companies which he would take short positions in (he purchased put options which allowed him to profit by the company’s stock going down). His tactic would be to do exactly what federal prosecutors are now accusing him of doing with Lennar. That is, use his media bestowed credibility to trash publicly traded companies so he could make money when their stock would go down. He’d accomplish this by making false statements about the company’s legality, ethics and financial viability. In some cases, such as his attack on Usana Health Sciences, Minkow was also paid by other short sellers so they could profit from the stock drop, too. In Usana’s case Minkow was paid $200,000[2] by fellow stock-fraud felon Sam Antar and another $50,000 by two hedge fund managers.

Of course, MarketWave Alert subscribers knew of Minkow’s bash-n-cash scheme four years ago. You can read my various rebuttals to Minkow’s M.L.M. company attacks HERE (see the documents listed in red).

What’s most sad about this is that the over $2.8 billion in total losses Minkow may have caused the innocent shareholders of his victims[3] might have been avoided had the mainstream media taken these rebuttals seriously rather than ignoring them. Instead, they kept on promoting Minkow as a credible, reformed scam buster. In fact, the Wall Street Journal would routinely report on Minkow’s attacks, giving them that much more credibility. After Minkow first turned his crosshairs on public M.L.M. companies with his Usana hit piece I contacted the WSJ reporter who was, at least inadvertently, supporting Minkow’s attacks. I made him aware of all the evidence I had that Minkow and his cohorts, FitzPatrick and Coenen, were unjustly attacking this and other companies based on bogus information. It was not until about a year later, after a Minkow induced SEC investigation of Usana and three separate class action lawsuits (one shareholder, one derivative, and one distributor) were all dropped with no finding of wrongdoing on Usana’s part[4], that this writer confided in me that he had only just then went back to read my rebuttals and “really wished I had read them back when you first sent them”. His supportive Minkow article he claimed he was working on never appeared in The Wall Street Journal, and he never wrote about any of Minkow’s attacks again.

Even more evidence that Minkow is still not telling the truth occurred during an interview with a local ABC news affiliate in San Diego last February. According to the article, Minkow claimed “We had 24 cases, 23 led to convictions” and that the Lennar case was “number 24”. I guess Barry’s now infamous selective memory must have been engaged during this interview, and he just forgot about Usana. Or Herbalife. Or Prepaid Legal. Or Medifast. Or, for that matter, the non-MLM company InterOil (IOC) that he shorted and trashed. Not only did none of these cases involve any “convictions”, Minkow failed to get any legal authority to take any action against any of these companies of any kind! He just shorted them, bashed them, then cashed out.

It’s also interesting to note how Tracy Coenen unconditionally and obligatorily repeated, supported and defended each and every one of Minkow’s accusations against Lennar (as she did with Usana, Herbalife, Medifast, and others), going so far as to declare that their CEO “blatantly lied”, Lennar exhibited a “pattern of fraud and deception”, and Lennar was perpetrating a “giant Ponzi scheme”. She even titled one of her blog entries “Being right feels so good” when she thought her and Barry had proven one of their many accusations. Tracy is usually quite the chatterbox when it comes to defending her position and credibility, yet she doesn’t seem to have anything to say about Lennar right now (she’s removed all of her many blog posts about them, but I have copies). She also doesn’t seem too keen on defending Barry anymore. She hasn’t offered a word of support (and yes, Tracy, being right does feel good 🙂 

It’s also odd that Minkow has left his website online in spite of the fact he hasn’t updated it since June 4th, 2010, and it still defiantly showcases both his Lennar and Medifast smear campaigns, including his supposedly upcoming Lennar documentary called “Two Big To Go To Jail: The Lennar Story“, and his own autobiographical movie. Yes, there is a movie about Minkow’s life, titled simply “Minkow” (which was originally to be called “Redemption”), staring Minkow playing himself along with a great cast, including James Caan, Mark Hamill, Ving Rhames, Talia Shire, and Justin Baldoni (as a young Minkow). It was due to be released sometime this Spring, but due to recent events the director has suggested the ending may need to be revised.

I hope they allow cameras in prison.

Len Clements
Founder & CEO
MarketWave, Inc.

[1] Based on an analysis of change in Lennar’s closing share price the day previous to the Minkow attack and the day of the attack, and factoring out the change in the overall market (based on S&P 500 index) during that same period.

[2] Minkow claims Antar only paid him $100,000 for his Usana report, and the other $100,000 Antar paid him, right about the time Minkow first began his Usana investigation, was simply a gift due to Antar’s “admiration” for Barry.

[3] Based on the analysis described in footnote #1.

[4] The SEC “informal inquiry” was dropped with no action taken, two lawsuits were dropped by the plaintiff, and another was dismissed on summary with the judge declaring that the claims made against Usana, most taken directly from Minkow’s material, were not even “plausible”.

Alert #174: 4/4/2011

Minkow Pleads Guilty to Conspiracy/Fraud
Robert FitzPatrick to be Tried for Libel

Barry Minkow, who produced a series of elaborate, well funded attacks on a number of M.L.M. companies between 2007 and 2009, formally pled guilty last week to Conspiracy to Commit Securities Fraud related to his attacks on non-MLM real estate developer Lennar Corp. Although it’s been known for days that Minkow was to plead guilty, details of his offence have only now been made public.

According to numerous news reports and the FBI’s own press release, Minkow:

“…admitted that he abused his relationship with federal law enforcement agencies to report false allegations of criminal conduct purportedly committed by Lennar and its management. Once Minkow confirmed that his allegations had successfully induced law enforcement to open a criminal investigation, Minkow allegedly used that knowledge and information to trade Lennar securities for his own benefit.”

In other words, he convinced the FBI to investigate Lennar based on his false and misleading anti-Lennar reports, and once he learned of this inside information he then purchased put options on Lennar anticipating the FBI investigation would eventually go public and Lennar’s stock would plummet. Besides the fact this is “insider trading” (what put Martha Stewart in prison), Minkow also purchased his options secretly and denied under oath that he had ever “shorted” Lennar stock (that is, invested in such a way that he’d make money by their stock price dropping).

A great recap of the story can be found here:

Also, prolific anti-MLM critic Robert FitzPatrick, who is founder and chairman of the Pyramid Scheme Alert organization, had his SLAPP[1] motion denied in part related to Medifast’s libel suit against him. FitzPatrick was hired by Barry Minkow to assist in his production of anti-Medifast reports, a public M.L.M. company that Minkow had also shorted. Minkow and FitzPatrick claimed, among other things, that Medifast’s M.L.M. division, Take Shape for Life (TSFL) was an illegal pyramid scheme. The Medifast complaint alleged FitzPatrick had libeled both Medifast and TSFL as well as Medifast Executive Chairman and TSFL co-founder Bradley MacDonald. The court ruled in favor of Fitzpatrick and dismissed him from any libel charge against MacDonald personally, but did allow the libel charge to go forward related to FitzPatrick’s claim that TSFL violated California’s penal code 327 against “endless chain” pyramid schemes.

Also named in Medifast’s libel suit were Barry Minkow himself along with partner William Lobdell and not quite as prolific anti-MLM blogger Tracy Coenen. Minkow’s, Lobdell’s and Coenen’s SLAPP motions were all granted.

Online reports to the contrary, fellow PSA co-founder and even more prolific anti-MLM critic Jon Taylor did not directly participated in Minkow’s Medifast or Lennar attacks and has not been named in either lawsuit.


There’s a lot of interesting twists and angles to this case. Minkow and Coenen both produced commentary that clearly implied Medifast was operating as an illegal pyramid or Madoff-like Ponzi scheme, but the court essentially said that’s their First Amendment right to say as long as its their opinion, based on how Medifast appears to them, and they don’t specifically declare Medifast to be operating illegally. Although Coenen did cleverly pose her accusations as questions, or indirectly by letting Minkow and FitzPatrick do her dirty work and then quoting them, Minkow was over the top in his numerous, matter-of-fact declarations that Medifast was operating an illegal pyramid or Ponzi scheme in violation of the law.

The same thing happened in Usana’s civil suit against Minkow (now settled). The court ruled in favor of Minkow’s SLAPP suit[2] in spite of him having publicly declared Usana to be an “evil”, “fraudulent”, “illegal pyramid” that was a “crime in progress” and “doomed to fail” — because it was his opinion, based on how they appeared to him. Which begs the question, what exactly does someone have to say about an M.L.M. company for it to be considered libel by a California judge? The legal definition of libel requires a statement that can be “proven false”. That is, someone’s opinion that your business operation “looks like” a pyramid scheme can’t be proven false. If someone says your business is, in fact, an “illegal” pyramid scheme and sites the specific law it is violating, that can be proven false. In FitzPatrick’s case his undoing involved his specific declaration that Medifast violated CA penal code 327 against “endless chain” schemes. It would seem that the rule all anti-MLM critics need to follow now is, say the MLM company is an “evil”, “fraudulent”, “illegal pyramid” that is a “crime in progress” and “doomed to fail” – just don’t specify what penal code they violated. But hold on. Barry Minkow did, in fact, directly and specifically accuse Usana of violating California’s code 327.[3] Yet, the same California court (although within a different judge’s courtroom) ruled in favor of Minkow’s SLAPP suit — for making the identical set of claims that FitzPatrick has made against Medifast!

Minkow hired FitzPatrick to write a report that focuses on the similarities between Medifast and Bernie Madoff’s Ponzi scheme. In that same report Minkow asserted that some of Medifast’s products had excessively high levels of lead in them and “were in clear violation of California’s Proposition 65”. The analysis was conducted by product liability attorney Christopher Grell, who also claimed to have found excessive levels of lead in the products of Minkow targets Herbalife, Usana and Nu Skin.[4] It was always curious how Minkow and Grell only found high levels of lead in publicly traded MLM companies that Minkow had a short position in. Mr. Grell also represented Robert FitzPatrick in defense of Medifast’s lawsuit against him.

So, besides the fact Minkow declared Medifast is violation of California’s Prop 65, he also claimed Medifast’s TSFL division was, like Usana, and just as FitzPatrick had claimed, an “endless chain scheme” in violation of California Penal Code 327:

Although Minkow does blunder by referring to California’s “endless chain” code “373”, we can be fairly certain he actually meant code 327. Code 373 is California’s “Noisy Neighbor” law. Of all the things Minkow accused Medifast of, being too loud was not one of them.

“For Medifast Inc. to defend endless chain pyramid allegations by stating its proud affiliation with the Direct Sellers Association would be the moral equivalent of Bernie Madoff saying that he attended the Charles Ponzi School of Investment Advisors.”

                       — Barry Minkow

So it’s confusing that Medifast’s libel suit against FitzPatrick is allowed to go forward because his comments were “libelous per se because they accuse Medifast of a crime”, but all of Minkow’s direct and specific accusations of criminal activity is declared protected free speech. And get this… Within the Order granting Minkow’s and Coenen’s SLAPP motion[5] and dismissing them from the libel suit the court recognized:

“That these statements are couched in language like ‘in my view’ does not affect the Court’s analysis… Statements in the publications do not attain constitutional protection simply because they are sprinkled with words to the effect that something does or does not ‘appear’ to be thus and so; or because they are framed as being ‘in our opinion’ or as a matter of ‘concern.'”.

Now I’m completely confused.

The part of FitzPatrick’s SLAPP motion that was upheld involved his alleged libel of Medifast chairman and TSFL founder Bradley MacDonald. This gets even more bizarre. According to the court’s decision, “none of Defendants’ statements can be reasonably interpreted as referring to MacDonald.” One of the defendants was an anonymous message board critic called “zeeyourself”. However, it was the comment from another far more active and uglier poster “medisdead” who said “Pimp-Daddy-Brad McDonald [sic] is a disgrace to our Armed Forces for running a Madoff Ponzi Scheme and ripping off good people”, which was cited within the court’s decision. However, the judge went on to say “To conclude that the authors of these postings read Defendants’ statements and understood them as referring to MacDonald would be pure speculation.” I see. So, they might have been referring to another Bradley MacDonald? The fact that all of the 78 negative posts made by the above two trolls all occurred after Minkow’s and Coenen’s attacks began is just a coincidence? When “zeeyourself” posted, “Barry Minkow and Brad MacDonald are cut from the same cloth, they are National Directors of scam. Bernie Madoff is the sole Presidential Director”[6], what did the judge believe here? That the poster wasn’t aware of Minkow’s anti-Medifast propaganda and just randomly picked his name out of thin air?

It’s also interesting to note that Minkow solicited a supportive comment from anti-MLM attorney Douglass Brooks to “bolster the charge that Medifast is in violation” of Penal Code 327. Brooks is also a Pyramid Scheme Alert board member and best known for representing the plaintiffs in the infamous Webster v. Omnitrition case. In an email to FitzPatrick[7] Minkow describes Brooks response as “less than enthusiastic”, and no supportive comment was ever provided. Kudos to Mr. Brooks. At least one anti-MLM critic’s opinion can’t be bought.

Robert FitzPatrick, who is often cited in media reports as a “multilevel marketing expert” and who testifies as such in legal matters, claimed during his deposition:

1) He has never spent one day as an M.L.M. distributor;

2) There is “no fundamental difference” between a Ponzi scheme and a pyramid scheme;[8]

3) When asked about his negative Usana report that Barry Minkow paid him to produce he responded, “I never regarded it as negative.”;

4) He spent “200-250” hours researching his negative Medifast report, but never contacted Medifast corporate to have them address any of his concerns, only spoke to “two or three” Medifast distributors, could not recall anything from all but one conversation, took no notes of any conversation, only asked about costs associated with building a Medifast business, never inquired as to the rep’s income, and was told by the one rep he could recall speaking to that building an Medifast business was “a lot of hard work”;

5) Thought is was a “red flag” that Medifast’s stock had increased from $2.50 per share to $32.50 between December of 2008 and 2009[9];

6) He did not consider Medifast an “MLM company” until the sales from their “Take Shape for Life” division exceeded 50% of total company sales[10];

7) He believes there are only “300” M.L.M. companies operating (not based, but operating) in California;[11]

8) He still believes that Amway’s “70 Rule” means “that 70% of whatever they purchased each month had to be resold to people who were not also distributors.”[12]

Within Tracy Coenen’s self-congratulatory gloat post on her blog she declares: “While it may be true that Barry Minkow has engaged in some bad acts,” (may be true?), “I did not know about any of them and I did not participate in any of them. I was simply a consultant doing work for a client, and I stand behind the work I did.”

It’s funny how Coenen obligatorily and unconditionally parroted every one of Minkow’s accusations against Medifast, Usana, Herbalife, Pre-Paid Legal, and Lennar, often adding considerable amounts of her own commentary in support of Minkow’s claims.[13] But now that Minkow has been exposed as a fraud and is likely going back to prison, he was simply a “consulting client”. And how did Tracy — a certified fraud examiner and “forensic accountant” — miss all of Minkow’s fraudulent bash-n-cash schemes in spite of working directly with him on each and every one of them? In fact, she repeatedly accused Lennar of fraudulent, illegal activity based allegedly on her own analysis, besides routinely supporting and promoting Minkow’s anti-Lennar campaign. Yet, we now know that Minkow’s Lennar attacks were part of a fraudulent extortion plot and insider trading scheme. I knew what Minkow was up to four years ago from just outside observation. Coenen was on the inside working directly with him on these attacks and, allegedly, couldn’t figure out what was really going on.

Also within her victory post she writes: “While Barry may have lied to the court, fabricated documentation, destroyed evidence, concealed witnesses, and intentionally hid information,” (again, may have? It’s already been proven in a court of law that he did!), “I was not involved in any of those bad acts and did not know that they were occurring. I never engaged in any misconduct in any litigation, and I was not involved in the concealment or destruction of any evidence.”

According to the Court Order granting sanctions against Minkow in the Lennar case, not only did Minkow possess “numerous emails” with Coenen and others who assisted in his investigation that he hid from the court, Tracy Coenen is specifically identified as having “deleted emails about Lennar (she) had exchanged with Minkow.”[14]

So Tracy Coenen now claims she knew nothing about any of the deceptive, fraudulent or illegal activities being perpetrated by Barry Minkow. So, is she dishonest, or an incompetent fraud examiner? Keep in mind, I’m not saying she’s either. I’m just asking a question.

Tracy Coenen is a devout defender of Freedom of Speech and avidly supports hers and other blogger’s First Amendment right to post critical commentary online. Well, unless it’s about Tracy Coenen. If she keeps with her usual M-O she’ll now respond to this Alert by attacking me within her blog — because she knows I can’t respond there. You see, Tracy Coenen only allows comments to post that are either in support of her, or that offer criticisms she thinks she can successfully rebut. If you challenge her with criticisms she can’t defend she’ll simply delete your comment and ban you from posting anything else — which is exactly what she did with me. Apparently, freedom of speech only applies to Tracy Coenen’s criticism of you, not the other way around.

As for the Medifast libel suit against Minkow and Coenen, Medifast does have the option of appealing. Since the legal definition of libel seems to be a crap shoot, and the odds of crapping out twice in a row are very slim, they should certainly go for it. However, they’d have to appeal to the 9th Circuit — the same appeals court that ruled against Omnitrition in 1994. So once again, all bets are off.

Len Clements
Founder & CEO
MarketWave, Inc.

[1] Strategic Lawsuit Against Public Participation: Basically, a suit filed by a defendant in a slander or libel case that charges the plaintiff with trying to use the legal system to stifle public criticism.

[2] Although the primary stock manipulation charge was allowed to go forward.

[3] In his Feb. 20th 2007 letter to the FBI, SEC, and IRS, Minkow quotes attorney and Pyramid Scheme Alert board member Douglass Brooks as saying, “it appears that Usana has ‘contrive[d],’ ‘set-up,’ ‘propose[d] or operate[d]’ an endless chain within the meaning of Cal. Pen. Code Section 327”. (The SEC did subsequently investigate Usana on this charge and apparently found no reason to believe it was true — the investigation was closed with no action taken of any kind).

[4] Each company subsequently conducted their own tests and found no evidence to support Minkow’s and Grell’s accusation. Only the products supplied to Grell by Minkow appeared to have unsafe levels of lead in them.

[5] Footnote 11 on page 14.

[7] Medifast deposition, pages 264-265.

[8] In a Ponzi scheme the total amount due to be paid from each participant’s investment exceeds the investment, where as in a pyramid scheme the total amount due to be paid from each participant’s investment is less that the investment.

[9] Besides the obvious fact a rapidly rising share price is not, or at least should not, be a “red flag”, a “multilevel marketing expert” would have known that the direct sales industry is counter-cyclical with the economy and that public M.L.M. companies have been outperforming the overall market for most of the last ten years.

[10] There is no legal or historical precedent that defines an M.L.M. company in this way.

[11] The most conservative estimates place this number at 800, and most estimates run between 2,000 and 3,000.

[12] During an FTC action against Amway (1975-1979) the 70% Rule meant that at least 70% of a distributor’s previous purchases must have been sold to anyone — “at wholesale and/or retail”. Back then there was no multilevel compensation checks paid by the company, but rather it was routine that each distributor resell their inventory to the next person one generation below them, and a small profit is taken as the product is transferred down each generation. Within the court’s decision in the FTC v. Amway case these “wholesale” sales to other distributors are specifically recognized as counting towards the 70% Rule. Furthermore, the 70% Rule has long since been interpreted to mean 70% of a distributor’s purchases must have been “sold, sampled or consumed” before any more product can be purchased. This rule is designed to inhibit the front loading and stockpiling of unwanted product purchased solely to qualify in the compensation plan. See:

[13] Barry Minkow likewise reciprocated by providing a very positive review of Coenen’s book about accounting fraud where he ironically refers to her as the “ZZZZ Best fraud investigator”. ZZZZ Best was the name of Minkow’s fraudulent carpet cleaning business that resulted in his 7-plus year incarceration. Coenen has now removed Minkow’s testimonial from her website, but I just checked and it still appears at the top of page one of her book.

[14] Fact No. 11, page 6.