It’s been a whirlwind week for San Diego’s Barry Minkow, the ex-swindler and convict who now devotes himself to uncovering corporate scams and ministering to an evangelical church.

First, he publicly promised to cease his investigations of Medifast, a weight-loss company in Maryland whose stock tumbled this year after his accusations of wrongdoing. Now, he’s promising to target Medifast anew after it filed a $270 million lawsuit Wednesday against him and his colleagues.

The suit could cast a spotlight on the unusual way that Minkow’s Fraud Discovery Institute and its new investigative journalism operation make money: They “short-sell” stocks of the companies they’re investigating, meaning they make a bundle if the companies lose value because of their findings.

In an interview, Minkow said he stands by his institute’s findings, which accused Medifast of running a pyramid scheme-style operation, and said “the bigger picture here is intimidation against the little guy who would dare come out with truthful information and question the practices of public companies.”

Minkow ran one of the most famous Ponzi schemes in American history as a young man in Los Angeles in the late 1980s. His $300 million carpet-cleaning empire defrauded investors out of millions of dollars, and he spent seven years in prison. (You can learn more about him in our Q&A from late last year.)

In recent years, Minkow has reinvented himself as a self-described fraud detective. Earlier this month, he announced he was forming an investigative journalism operation with a former Los Angeles Times reporter.

Medifast, which aims to help people lose weight through meal replacements, has been a Minkow target since 2009, when the Fraud Discovery Institute published a report alleging that Medifast’s Take Shape for Life unit has a “multi-level marketing compensation plan” that “does not actually offer a viable income opportunity but the illusion of one.”

The report compared Medifast’s compensation plan to convicted swindler Bernie Madoff’s Ponzi scheme.

Dow Jones Newswires reported that Medifast’s stock fell by 26 percent within days after the institute released an updated version of the report last month:

The credibility of Minkow, who served several years in prison for stock fraud, remains in question among Wall Street circles. But his attacks against companies and the reaction of stocks to his moves underscore his ability to ruffle feathers. Minkow and his institute have made similar moves with other companies in the past. Last year, his attack against home builder Lennar Corp. (LEN) caused the stock to tank about 20 percent after he accused the company of improperly boosting cash on its balance sheet in an Internet spiel.

However, in several cases including with a CSX Corp. officer, Minkow has pointed out misstated credentials in the biographies of corporate officers that have led to sanctions and even firings.

Minkow makes no secret that his institute makes stock-market bets against the companies he’s investigating. If their stock prices go down, he makes money.

Minkow told me today that the short-selling of Medifast stock in conjunction with the institute’s investigation “worked out fine.”

But this week, Minkow appeared to backtrack from his targeting of Medifast. Minkow issued a press release Tuesday saying the institute’s investigations of Medifast were finished, and it had notified Medifast of this. He told me that he’d also removed the Medifast report from his institute’s website.

“We were walking away. We had investigated them about 18 months, and we thought we’d gone as far as we could,” he said.

Then came the $270 million lawsuit, filed in San Diego federal court, a day later on Wednesday. Medifast accuses Minkow and others of defamation and refers to Minkow’s short-selling approach as a “get-rich scheme.”

In a statement, the executive chairman of Medifast, Bradley T. MacDonald, took a swing at Minkow and his findings: “Medifast is no Ponzi scheme and by likening me and the company to the massive fraud perpetrated by Bernie Madoff, Minkow and his associates have gone too far.”

The lead San Diego attorney for Medifast couldn’t be immediately reached tonight.

Minkow said the institute will repost the Medifast report and restart its investigations of the company. “It’s on now more than ever,” he said.


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