McGladrey & Pullen/RSM McGladrey has been named the new audit/tax firm of Medifast, the company announced in a filing last Friday. The Company dropped Bagell, Josephs, Levine and Company LLP of New Jersey who was purchased by Friedman LLP, citing/blaming Sarbanes-Oxley for reducing the number of accounting firms that have the "extensive resources and experience with public companies on a national and regional basis to better serve Medifast."
For those of you not familiar, Medifast is "an amazing weight loss program" whose products "are formulated with a High Fullness Index™ so you don't get hungry," sayeth Medifast.
Despite the Company's commitment to getting people obese-less, there has been no shortage of doubters about the their business model including Barry Minkow's Fraud Discovery Institute and Tracy Coenen. Medifast didn't appreciate their thoughts and just up and sued FDI, Mr Minkow, Ms Coenen and others (including someone from a Yahoo! message board for defaming Medifast CEO Bradley "Pimp Daddy Brad" MacDonald) for $270 million and they got a little nasty about it.
From the press release:
For the past year, Minkow, a convicted felon, has employed against Medifast techniques similar to those that he has employed against a host of other public direct selling companies - issuing false and misleading reports in an attempt to manipulate and personally profit from a drop in the company's stock price.
Okay, so Medifast obviously doesn't take criticism well and then they resort to name calling and play the "a convicted felon" card.
As you might expect, this reactionary measure got the attention of another convicted felon turned fraud fighter, Sam Antar (not privy to the investigation but never one to avoid a fight) and he called it this way:
To Bradley T. MacDonald and Michael S. McDevitt:
You both need to grow some hair on your chests and stop acting like whining cry babies to investors, securities regulators, and now, the federal courts...
...your lawsuit fails to provide a detailed and credible substantive line-by-line rebuttal of serious allegations of improprieties concerning Medifast's business model, marketing practices, and financial disclosures made in reports issued by Fraud Discovery Institute.
Now you would think that if a company is embroiled in a controversial business (i.e. dieting) that is having its business model questioned by respected fraud investigators, an audit firm might avoid said company. While we've raised this question in the past (e.g. KPMG taking on Overstock) audit firms still seem to be willing to take a chance until they get inside the company and get so sketched out that they have no choice but to drop the client or get fired.
KPMG's situation with Overstock seems to have worked out fine so far but there could still be land mines out there. M&P seems to be willing to take the same risk. Our email to a RSM/M&P spokeswoman was not returned.
Medifast Drops Merged N.J. Accounting Firm for McGladrey [Citybiz]
Medifast, Inc. Files Lawsuit Citing Defamatory Statements Made Against the Co. [Medifast Press Release]